(Home Equity Conversion Mortgages)
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What Is a Reverse Mortgage?
Today, a Reverse Mortgage which is also called a Home Equity Conversion Mortgage, may be one of the smartest financial tools available to older homeowners. A reverse mortgage is for homeowners, age 62 or older, who have paid off all or the majority of their traditional mortgage and would like to convert a part of their primary residence equity into cash.
Simply, instead of the homeowner making monthly payments to the lender, the lender makes monthly payments to the homeowner, who can use the cash for whatever purpose they choose. The uses can include home improvement, travel, investing or living expenses.
Regardless of the use, it is important to know that:
- Homeowners remain the owners of the property
- As the homeowner, you do not have to make any payments towards the loan balance as long as you live in the property
- Homeowners will be required to pay back the reverse mortgage only when the home is sold or vacated
- As the homeowner, you are responsible to keep property taxes, homeowners insurance and association dues, if applicable, current and up-to-date
- Social Security and Medicare eligibility are not impacted by a reverse mortgage
5 Most Common Reverse Mortgage Myths and Misconceptions
With today’s reverse mortgages, the owner of a home remains the owner of the home. If they choose to, they can even sell it. Dealing with taxes and insurance fees are still responsibilities of the owners, but as long as these requirements are met, an owner can’t be evicted from their home.
A reverse mortgage is often thought as a last resort. Today’s reverse mortgages can be a very effective retirement financial tool. They can use the equity in their home to access a low-cost loan to use at their discretion.
Reverse mortgages are non-recourse loans, which means the debt is not passed on to the homeowner’s heirs.
Unlike conventional home mortgages and loans, with reverse mortgages, approval for the loan does not depend upon the homeowner’s credit worthiness. The homeowner is able to have existing home debt when applying for a reverse mortgage.
A reverse mortgage loan is only due when the owner of the house is no longer living there, meaning that they have either died or moved out. These loans are linked to the house itself, not the owners. If the owner has passed away, their heirs will handle the loan through refinancing programs or by selling the property.
Reverse Mortgage Questions & Answers
Q: What is a reverse mortgage loan?
A: A reverse mortgage is a loan that enables senior citizens to convert home equity into cash. This type of loan still allows you to remain title of your home, and the loan usually is not due until the borrowers permanently leave the house. After this the home is usually sold to pay the loan.
Q: What if I have an existing mortgage?
A: You are still able to qualify for a reverse mortgage, even if you have an existing mortgage. But this means that you need to pay off the existing mortgage with the reverse mortgage loan. Once this has been done, you are able to do whatever you’d like with existing money.
Q: How do I qualify for a reverse mortgage loan?
A: Not just anyone can apply for a reverse mortgage; there are specific qualifications. First off, the applicant must be 62 years old or older. It is also required that the applicant is the titleholder of the house. Lastly, you must satisfy financial eligibility criteria as established by HUD and have sufficient equity in your home.
Q: Once apply for a reverse mortgage, will the bank own my home?
A: You still remain titleholder of the house, even after receiving a reverse mortgage loan. As long as you continue to pay taxes, insurance, and maintain the home you will remain the owner of the home.
Q: What are the benefits of a reverse mortgage?
A: Unlike other loans, reverse mortgages allow you to convert home equity into cash. This is very helpful in paying monthly bills and living more comfortably financially.
Q: Will my heirs still inherit my home?
A: Yes, your designated heirs are able to inherit the home. They can pay off the loan through refinancing or by selling the home altogether. Whatever money is left after selling the home your heirs will keep.
Q: What are reasons to choose a reverse mortgage loan over a home equity loan?
A: There are several reasons to choose a reverse mortgage over a home equity loan, and some of these include:
- You do not have to make a mortgage payment. Instead of paying the monthly fees of a home equity loan, no money is due until you have permanently left the residence.
- The amount of financial income you receive does not matter, it is even possible to get a reverse mortgage when you are receiving no income at all.
- A reverse mortgage will get rid of the mortgage payments on your home. The first portion of the loan goes directly towards paying off your remaining mortgage on the house.
Q: Are taxes or insurance required?
A: Since reverse mortgage is not considered income, you are not taxed for it. But since you will still remain the titleholder of your home you are required for the general maintenance, insurance fees, and property taxes. If these requirements are not met the mortgage company can demand the loan balance be paid in full and can foreclose the property.
Q: Is counseling required prior to being granted a reverse mortgage?
A: Yes. In order to even qualify for a reverse mortgage you must meet with a reverse mortgage counselor, discuss payment methods and whether a reverse mortgage is right for you. After this the counselor will provide a certificate of counseling which will qualify you for a reverse mortgage