Could a Reverse Mortgage Be a Good Option for You?
What is a Reverse Mortgage?
A reverse mortgage is a type of home equity loan for homeowners who are 62 years or older. It allows borrowers to access a portion of the home’s equity and uses the home as collateral. Generally, the loan doesn’t have to be repaid until the last surviving homeowner passes away or permanently moves out of the property.
Reverse mortgages are often considered as the last-resort source of income, but it has become a useful retirement planning tool for some house owners. Most of the reverse mortgages are HECMs (home equity conversion mortgages) that are insured by the Federal Housing Administration (FHA) allowing the senior homeowners to utilize a portion of their home equity without having to move.
How Does a Reverse Mortgage Work?
Based on a percentage of accumulated home equity, the lender makes payments to the borrower. This needs to be repaid when the borrower dies, permanently moves out or sells the home. The eligibility criteria include seniors who are 62 years or older who have small mortgages or own homes outright. The home must be your primary residence and you can’t be delinquent on any federal debts.
The lenders will evaluate your credit, income, monthly living expenses, and assets. You must also be current on the property taxes and hazard premiums.
Homes must meet the FHA property standards and the eligible property types include a single-family home, FHA-compliant manufactured homes, HUD-approved condo projects or two-or-four-unit homes with the borrower living in one unit. Retirees can use the cash to supplement income, retire debt, pay health care expenses or finance home improvements.
Regardless of how much you borrow, you will never owe more than the value of your home in a reverse mortgage loan. At the time of repayment, if the balance is less than your home’s value then you or your heirs keep the difference. In case of a married couple, you may get a reverse mortgage but leave one spouse off the HECM. If the borrowing spouse moves out permanently or dies, a non-borrowing spouse can continue to live in the home as long as he/she is listed in the HECM documents. The surviving spouse must maintain the home and pay insurance and taxes as long as he/she lives in the house, and will not be given any of the reverse mortgage proceeds.
Who Benefits from a Reverse Mortgage?
According to research fellow at the Center for Retirement Research at Boston College, Steven Sass, a reverse mortgage is beneficial for those who:
- Can afford the cost of maintaining their home and keep up with the property taxes and insurance.
- Don’t plan to move.
- Wish to access the home equity to supplement their income in retirement.
As per the President and CEO of the NRMLA (National Reverse Mortgage Lenders Association), Peter Bell, “Some people even use a reverse mortgage to eliminate their existing mortgage and boost their monthly cash flow. Some people may have had some unexpected expenses like a health care situation or a home repair or have an immediate need to pay off debt.”
The lender will pay to the borrower throughout his/her lifetime based on a percentage of accumulated home equity. The loan balance need not be repaid until the borrower permanently moves out, dies or sells the home.
How Much Can You Get?
There are several factors that determine the amount of money you can get through a reverse mortgage. Listed below are a few:
- Age or age of the youngest spouse in case of married couples.
- Interest rate.
- Value of home.
- The HECM FHA mortgage limit of $679,650 or lesser of appraised value.
You can take up to 60% of your initial principal limit in the first year of your reverse mortgage. This is known as your first-year draw limit. If the amount you owe on an existing mortgage exceeds this amount, you can take out extra money to pay off that loan and the associated fees as well as the additional cash of up to 10% of your principal limit.
Conclusion
PRMI (Primary Residential Mortgage, Inc.) offers a reverse mortgage program that helps borrowers throughout South West Florida cover their financial expenses based on the equity they have in their home. If you are looking at a reverse mortgage in the Fort Myers, Naples or the surrounding areas then you should remember a few important points. The money coming from a reverse mortgage is a non-recourse loan which is typically tax-complimentary and you can obtain the funds in multiple ways such as a term payment, a line of credit or a tenure payment.
PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer. This ad is not from HUD or FHA and was not approved by HUD or any government agency. The loan is subject to foreclosure for failure to pay taxes and insurance to maintain the property and insurance and to comply with the terms of the loan.