Reverse Mortgages are intended to allow senior homeowners 62 years of age to take a good part of their home equity into cash. They do not have to sell their home or give up the ownership or title. They do not have make any new mortgage payments also. Depending on which program they choose they can receive a lump sum, get a monthly amount or just set the money aside for when they do require it as a line of credit. The home remains occupied as the primary residence of the senior citizen
Estimated amount from reverse mortgages is calculated by these factors.
- Interest rate
- Value of the home
- Location of the property.
Reverse Mortgages do not allow you to give up all the in your home. HUD and the FHA have imposed national lending limits on the amount that lenders can give depending on where the property is located. With the passing of the American Recovery and Reinvestment Act of 2009 HUD and FHA lending limits have been raised to higher amounts. Please use the above calculator to learn how much you will qualify for.
Myth 1. – Will the bank own my home. The borrower retains title to the home and cannot, be forced out of his or her home, as long as property charges, such as taxes and insurance, are paid and the home is maintained in reasonable living condition. Once the last borrower permanently moves out of the home, the loan must be repaid. Myth 2. – The home must be paid off or be debt-free to qualify for a reverse mortgage. Reverse mortgages convert home equity into cash. If there is equity in the property, the homeowner may be eligible for a reverse mortgage and pay off an existing mortgage. Myth 3. – When a reverse mortgage becomes due, the bank sells the home. It’s common for the borrower or the heirs to sell the home to repay the loan, it’s a decision the borrower or his heirs make not the banks. Myth 4. – What if I owe more than the value of the home. f the loan balance exceeds the value of the property you and your heirs owe no more than the appraised value of the property. Myth 5. – Children have no say in the reverse mortgage. Seniors should talk with their children about reverse mortgages. Many baby boomers are faced with trying to plan for their retirement and pay for their children’s education. Often, the children of many seniors are happy that their parents have a financial solution available to help them live more independently and financially secure. Myth 6. – There are no safeguards in this program. Two of the great safeguards for reverse mortgages are that they are structured so that the borrower or his estate can never owe more than the value of the home upon repayment and secondly they are also insured by the Federal Housing Administration, an arm of the U.S. Department of Housing and Urban Development (HUD). Myth 7. – Reverse mortgage will impact Social Security and Medicare benefits. A reverse mortgage will normally not affect Social Security payments or Medicare benefits. Depending upon the borrower’s circumstances, a reverse mortgage may affect benefits if one accepts benefits from the Federal Supplemental Security Income (SSI) programs and or state-administered programs like Medicaid. Myth 8. – There are restrictions on how the money is used. There are no restrictions. Proceeds from the reverse mortgage can be used for any reason. It is advised that the senior speak to a financial advisor or their CPA. Some common ideas are to travel, help their kids or grand kids education, pay off debts make a desired purchase or just live more comfortably. Myth 9. – Once the proceeds are received, taxes will need to be paid. The cash proceeds from a reverse mortgage are tax free because funds are not considered income. It is recommended that the borrower consult with a financial advisor. Myth 10. – Reverse mortgages are for seniors in need for “house rich, cash poor”. It is an excellent tool that has been used by homeowners from all walks of life to enhance their retirement years. Many seniors with multi-million dollar homes are using reverse mortgages as part of their estate or legacy planning in conjunction with advice from financial advisors. Please talk to your financial advisor and or CPA. Myth 11. – The are no disadvantages or pitfalls. There are some and they include the limits set by the FHA that prevent reverse mortgage lenders from giving you all the equity in your home. There is an upfront mortgage insurance charge of 2%. Interest rates applicable with the closing costs at times tend to be higher than some regular mortgages. Additionally like all other programs, it eats up the equity in the home which may leave less of a potential equity for inheritance if that is a concern.
There are several types of reverse mortgage products. Learn more about each of these products here. Read more about Types of Reverse Mortgages
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you. Eligible property types include single-family homes, manufactured homes (built after June 1976), qualified condominiums, and townhouses. Steps to Getting A Reverse Mortgage
Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply to reverse mortgages too. You can expect to be charged an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs. In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. Below is a more in-depth explanation of each type of fee. Read More about the Typical Costs In Getting a Reverse Mortgage
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