There is a home loan that older individuals can obtain called a reverse mortgage. Differing from a regular mortgage, it is a mortgage that is absent in monthly payments. In contrast, the person borrowing money will receive payments, directly from the lender, either as a credit line, one lump sum or as a monthly allotment.
People that have reached the age of 62 can take advantage of these reverse mortgages, yet it may apply to those that are just 55. Gaining access to this equity can improve their ability to pay for monthly living costs once they have retired.
If you want to know more about reverse mortgages, the following information will help you determine if this is the best choice for you.
When you take out a reverse mortgage, you are accessing the equity of your home. You can receive this money immediately, or you can simply take out money when you need it.
Once the borrower dies, however, the reverse mortgage will come due if the borrower has been outside of their home for more than a year, or if they decide to sell their property or simply stop paying the taxes.
Once someone has retired, if they have a free and clear home, they can use this equity to assist them while they are retired. This can provide a much-needed influx of cash for traveling, or home repairs as well.
Different Types Of Reverse Mortgages
There are different types of reverse mortgages which include: single-purpose reverse mortgages, proprietary reverse mortgages, and also HECMs.
Similar to a regular mortgage, you may obtain one with either an adjustable or a fixed rate. If you decide to get one with a fixed rate, throughout the entire loan, the interest will never change. With adjustable-rate mortgages, it can fluctuate dramatically.
Let’s compare these different types of mortgages.
Home Equity Conversion Mortgage (HECM)
These are federally backed loans that you can obtain as an FHA, as well as through HUD. If you do obtain one through HUD, it can only be accessed through an approved lender.
HECMs offer some payment options:
Get a one-time payment: After closing, payment is upfront. This will only apply to those that are obtaining a fixed-rate reverse mortgage.
Obtain monthly payments: This will be money that you will receive, called term payments, for a specified period, but you must remain at your primary house of residence to receive these tenure payments.
Get a line of credit: As you need money, you can simply withdraw the funds. The principal balance, that which is used, will continue to grow. An example of this would be obtaining a $200,000 credit line, with just 4% interest, after which the principal loan amount could rise, over 10 years, to as much as $270,000.
Essentially, you are going to owe substantially more money than the initial amount that you borrowed, yet you will have more funding to access. Overall, throughout the life of the loan, larger amounts of cash will be available.
Combining everything above: one other option is to combine monthly payments, called tenure or term payments, along with receiving a credit line. You cannot, however, combined receiving a large lump sum of money with a payment option.
With a HECM, in 2022, the maximum amount that you can borrow is $880,500, yet this will be dependent upon how much your home is appraised for, as well as how much your existing mortgage balance is, along with any other financial details that would be applicable. By speaking with your lender, they can start the process of appraising your property so that you can move forward.
HECMs are called non-recourse loans and our insured specifically by the FHA which means there will never be the fear of owing more than the loan amount, even if your house increases in value and you decide to take out more money.
If you are 62 or older, you can qualify for this loan, but it will require going through a HECM counseling session, with a HUD-approved professional, to get this reverse mortgage. There are also certain requirements that you must be aware of such as tax implications, as well as repayment options, that apply only to HECM loans.
These are similar to FHA loans, which do require the recipient to pay a mortgage insurance premium, which is similar to other HUD-related programs. The total cost is going to be 3% of the total loan amount, with the recipient first thing half a percent of the total balance annually.