With the cost of living rising and longer life expectancy, many seniors end up with limited funds. As a result, a reverse mortgage might be the best bet to ultimate comfort during retirement.
It is a loan specified for homeowners above 62 years, which allows them to transform some part of their home equity into money. In addition, this loan can be an extra income source for seniors who want to add to their retirement income.
How Does it Work?
A reverse mortgage utilizes a part of the home equity to pay off the mortgage that exists on the home for people with a mortgage balance.
A reverse mortgage does not involve monthly payment since the loan balance is not due until the final borrower leaves home, kicks the bucket, or becomes delinquent on tax payment.
Even though you need not make a monthly payment, it can reduce your monthly interest. This is because not making the monthly interest will add the entire loan to the interest.
On paying your mortgage, the lender will pay all proceeds left from the fresh loan. People who own their homes will get the entire proceeds from such loans since there is no mortgage balance debt.
What can You Use a Reverse Mortgage Debt for?
Here are possible reasons you might want to go for a reverse mortgage:
Reduce or get rid of monthly mortgage payments
Improve or renovate your home
Debt consolidation
Get access to the net worth value of your home
Boost your savings or have an emergency fund
Increased income raises the value of other assets
Payment for health care
What to Expect with Reverse Mortgage
One still needs to keep in mind that a reverse mortgage is a loan, and as a borrower, there are some things expected of you. A few of these responsibilities are:
Pay your home insurance tax and property taxes
Maintain the home with all repairs done
The home should be your primary place of residence, and you will live there for over half a year.
The loan might be due if you are faithful with your home insurance and taxes, you did not keep the home in good condition, or you stayed in the house for less than 180 days in the year.
Keeping to the three obligations expected of you above will keep your reverse mortgage valid until the final borrower leaves the house or dies. With this, they can sell the house and the funds used to finance the loan.
Reverse mortgage loan type is non-recourse, meaning that should the home be sold for a lesser value, insurance will fill the difference. With this, you will not be left with negative equity on loan, and the lender will not lose. The type of reverse mortgage you get determines who absorbs the costs and takes care of the difference – the FHA or lender.
In contrast, selling the home above its value will generate some excess funds, which will be passed to you or any of your heirs.
Who Qualifies for Reverse Mortgage?
Here are essential criteria you must meet before you can enjoy the benefits of a reverse mortgage:
You are 62 years and above.
The equity in your home must be enough – more than half. However, the amount required by each lender varies.
You need to have a counseling section with a counselor approved by the Department of Housing and Urban Development, which will allow you to get more info about the plan and the options you have.
There needs to be a financial assessment to ensure that you are fit for success with such loans.
Besides these basic requirements, here are other criteria with which your home is accessed:
You should be living in the house as your primary residence
The home needs to be well maintained, meeting FHA standards
Such home can neither be mobile nor manufactured home
If such a home is a condo, it needs to be on the FHA/HUD-approved condo list. You, however, qualify for a proprietary reverse mortgage if it is not.
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