Do you know that a mortgage works in two directions?
Which way is your mortgage going?
- A mortgage is for when you want to buy a house and have no money.
- A reverse mortgage is when you have a house and want to raise money.
What does that mean?
A reverse mortgage is a loan available to seniors. It is used to release the home equity in the property as one lump sum or by multiple payments. In other words, if you have a property that you own or is mortgaged, you can use it to raise money. A reverse mortgage could be thought of as an alternative to taking cash advance loans.
When will I pay it off?
Your obligation to repay the loan is deferred until you die, the home is sold, or you move on, say, into a retirement home.
Here’s the difference
In a regular mortgage, the homeowner makes a monthly payment to the lender, and each payment increases your equity in your property. By the end of the term, often 30 years, the mortgage has been paid in full and the property belongs to you.
In reverse?
In a reverse mortgage, the home owner can choose to receive monthly payments or a bulk payment of the amount of equity that has accumulated from mortgage payments. The debt on the property will increase each month.
Why?
The reverse mortgage is becoming popular in America. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements or simply have a last ‘splurge’ – a Caribbean cruise?
For full information
You can receive free information about reverse mortgages in general by calling AARP toll free at (800) 209-8085.
Since your home is probably your largest single investment, it’s smart to know more about reverse mortgages, and decide if this is the way you want to go.
For you to be eligible…
You must
- Be a homeowner 62 years of age or older,
- Own your home outright, or
- Have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and
you must live in the home.
You are further required to receive consumer information from an approved HECM counselor prior to obtaining the loan. You can contact the Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.
For your home to be eligible…
Your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower.
The difference between a reverse mortgage and a bank home equity loan
- With a home equity line of credit, you must have a sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments.
- The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.
You don’t make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities.
A reverse mortgage can work in a pinch, and unlike a viatical, if the home sells at a profit the proceeds will often go to the heirs – which is actually fair enough. I guess if I were in that situation and I knew my number was up soon I wouldn’t mind having some cash for a little fun before the end.