A reverse mortgage is a home loan designed for seniors who already own a home and would like to use some of the home’s equity to supplement their retirement income. It can also be used as purchase money instead of traditional financing. This mortgage is called “reverse” because the payments are reversed – instead of the borrower making payments to the lender, the lender makes payments to the borrower.
The loan is paid back when either the borrower sells the home, permanently moves out of it or passes away, leaving the home to their heirs. Although the qualification process may very by lender, our objective is to help make the reverse mortgage process as smooth as possible. The amount of the reverse mortgage benefit is determined by a formula that incorporates three factors:
- Homeowner age – all homeowners must be at least 62 years of age
- Current appraised value of the owner occupied home, condo, town home or 2-4 residential units.
- Current interest rate
There are a number of options that enable the borrower to receive their money:
- Lump sum pay out (only option available for the fixed rate loan).
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principle residence.
- Term – equal monthly payments for a fixed period of months selected.
- Line of Credit – unscheduled payments or in installments, at times and in amounts of borrower’s choosing until the line of credit is exhausted. Typically, the unused balance of the line is increased by 3% per year. This is subject to change depending on the lender.
- Modified Tenure – combination of the line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term – combination of the line of credit with the monthly payments for a fixed period of months selected by the borrower.
The borrower will retain title to the home during the period when you have a reverse mortgage, just the same as with a regular home mortgage. Once your home is passed to your heirs, the reverse mortgage comes due. Your heirs may either pay the balance due on the reverse mortgage and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. If they sell the home, they get to keep any excess sales proceeds. You can never owe more than the home’s value.
With a reverse mortgage, you have the freedom and flexibility to use the money from your home. Common uses for the reverse mortgage funds vary. Here are a few examples:
- Payoff existing loans and other debt
- Long-term care insurance
- Healthcare and prescription costs
- Extra income for everyday living expenses
- Estate and financial planning
- Home remodeling or repair
- Leisure activities and vacations
These sites have additional reverse mortgage information:
- The Department of Housing and Urban Development http://www.hud.gov/buying/rvrsmort.cfm
- National Reverse Mortgage Loan Association http://www.nrmla.org/
Please feel free to contact me for a no cost, no pressure reverse mortgage loan consultation. After our conversation, you will know which program would best suit your needs.