If you are a senior citizen aged 62 and above, own a home and it is your primary residence, you can have access to a reverse mortgage loan. This form of loan enables homeowners to borrow money based on the value of their homes. The impressive feature of this type of loan is that the borrower is not restricted to pay back the debt immediately. Instead, the payment is deferred until they pass away or move to another home. In that case, the payment of the mortgage is taken from the sale of that home.
Please note that the government doesn’t provide these loans. The Federal Housing Authority (FHA) with the help of the Home Equity Conversion Mortgage (HECM) program does. The FHA insures reverse mortgages to ensure lenders recover their entire investment. Thus, lenders never have to worry about incurring losses. This happens even when the home’s sale value is lower than the balance of the loan.
When used appropriately in a well-organized financial plan, a reverse mortgage can be a very helpful tool for seniors. Therefore, this article is meant to help you learn the details concerning reverse mortgages and if this is what you need. The main goal here is to help you make informed decisions.
How a reverse mortgage works
A reverse mortgage loan is specially designed to assist senior citizens to become financially stable. In fact, it becomes super helpful to those with fixed income. Among the things which determine the amount of money available to the borrower includes the value of the home, the amount the borrower still owes on the mortgage, other home loans and of course the age.
As mentioned above, you have to be aged 62 and above. A non-borrowing spouse under 62 years is also eligible. The home in question must be your primary residence. In other words, you must live in that home for a period of at least 6 months and one day every year. Don’t assume you are disqualified because if you have bad credit. Consult a qualified reverse mortgage broker and see if they can help you work something out. In most cases, past credit issues can be rectified.
A mortgage broker is a certified reverse mortgage specialist who works with various lenders but does not loan the money. The money you will be able to draw from the loan will depend on your age. The older you are the more you are eligible to get. That is because the amount of money is calculated based on the age of the youngest spouse in that home or estate. As a borrower, it is your right to decide whether you want to receive your money in a lump sum, a line of credit or through a monthly payment. As long as you or your spouse are still living in this particular home, you will not make any payments regarding this home. The payment only becomes due if you and your spouse move out or pass away.
If you or the heir of the home decides to sell it, the payment received from the sale will have to settle the loan first. In a situation where the loan is greater than the value of the home, all the money gotten from the sale will settle the loan and it will be considered fully paid. Sometimes back, there were concerns that one spouse would be evicted after the death of the spouse who was listed on the mortgage, things have changed now. New reverse mortgage rules which took effect in 2014 protect non-borrowing spouses. It allows the living spouse to stay in the property until their demise.
Top 3 benefits of reverse mortgage loan
1. Best retirement tool
Retirees looking for a second source of income can count on a reverse mortgage plan. Over the years, this type of mortgage product has gone through several changes in terms of the regulations associated with it. As a result, it has become the best option for many homeowners. Although this plan may not be ideal for everyone, if you are looking for a comfortable financial situation in retirement, then you have nailed it with a reverse mortgage loan.
2. Enhance your finances
Living your golden years in the same lifestyle you were living during your working life is a dream come true to many people. It especially becomes a challenge if you don’t have a stable source of income to afford a good life. The truth of the matter is that many people are not prepared for their retirement days. If you have absolutely no saving towards your retirement is even worse.
Fortunately, a reverse mortgage can help increase your income. With a reverse mortgage, you will not incur the cost of the mortgage payment. Hence, the money you get can be used to cater for other expenses such as medical care, home improvements, purchase of a new home and travels among other things. With the extra cash, you have a chance to do things you had always wanted to do but did not have the means. In short, your last years on the face of the world will be filled with joy and comfort.
3. Retain ownership of your home
The perception that when you take a reverse mortgage loan you cease from becoming a homeowner is awfully wrong. The truth is, you are still the rightful owner of your home. The lender of the loan does not have the right to take ownership of your home in any way. As long as you adhere to the terms & conditions of the loan, pay taxes and insurance, nobody should take away the collateral you are borrowing against.
The bottom line
The beauty of a reverse mortgage is that you will still own your home. It also serves a crucial aspect by helping homeowners to cover their living expenses and avoid moving in old age. You do not have to spend your golden years agonizing because you are not able to cater for your expenses and healthcare needs while you have the option of a reverse mortgage loan. You are at liberty to decide on the best way to use the loan proceeds. Possibilities are only limited by your imagination! So, consider a reverse mortgage and make good use of it.