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What is a Reverse Mortgage?

Reverse mortgages are exactly that. Instead of paying the bank, the bank pays you. 
Reverse mortgages were first conceived to accommodate people 62 years old, or older, who wanted to stay in their houses while tapping into their accumulated equity.  This type of mortgage loan has been around since the 1970’s but they have become immensely popular in recent years due to the rapid escalation in home values.

Reverse mortgage loans can provide significant financial benefit to older homeowners.  Unlike a mortgage refinance or home equity loan, you use the equity in your home to supply an annuity like cash flow (i.e. the bank pays you monthly) or you can take a lump sum of cash… with zero monthly payments.

Basically, reverse mortgages allow seniors to exchange the equity in their homes for cash… without making monthly payments to the bank.

Reverse mortgage loans can provide you additional income in your retirement years which can improve your quality of life.  They are an extremely powerful tool to help eligible homeowners obtain tax-free cash flow.

Thousands of people already used them to enhance their retirement lifestyle.  Others have used them simply to eliminate mortgage payments and reduce expenditures after retirement when income is usually lower.  Either way, they can be an invaluable source of cash or reduced expense as you reach retirement age.

Reverse mortgage loans typically require no repayment for as long as you live in your home. They must be repaid in full - including interest and financed closing costs - when the last living borrower permanently vacates or sells the property.

What about my kid’s inheritance?

We all love our kids and most of us want to leave something for them.  Unfortunately, the retirement landscape in our country is rapidly changing thanks to rising costs, fixed incomes, cutbacks in pensions, significant increases in consumer debt, and improvements in medical research that is prolonging life expectancies.

We never know when some unexpected catastrophe will create a financial burden.  A reverse mortgage can help in several ways.  First, when a reverse mortgage is set up, a line of credit is granted, giving the applicant the opportunity to take monthly installments, a lump sum of cash, or a line of credit to draw on in the future.  This provides seniors a way to access much needed cash if a crisis arises.

In addition to providing seniors with a way to access funds for unexpected expenses or retirement cash flow, many seniors have found reverse mortgages helpful in protecting assets should they become hospitalized long term or should a skilled nursing facility become necessary.  You should consult your financial advisor to determine if a reverse mortgage might help with asset planning/protection if you are in declining health.

Reverse Mortgage Questions and Answers

1. Can I qualify for a Reverse Mortgage?
Reverse Mortgages must all meet the guidelines established by HUD's Federal Housing Administration (FHA.)  The FHA requires that the borrower is a homeowner, 62 years of age or older; live in the home and have sufficient equity in the home based on your age and the value of your home.  To protect your interests and make sure that a reverse mortgage is right for you, you must receive consumer information from HUD-approved counseling sources prior to obtaining the reverse mortgage. 

2. Is there a restriction based on the type of home I own?
The only restriction is that your home must be a single family, or 2-4 family owner occupied dwelling.  Townhouses, condominiums, detached homes, and some manufactured homes are eligible. Condominiums must be FHA-approved.

3. What's the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage loan, or a home equity line of credit, the bank considers your income and amount of debt because you are required to make monthly mortgage payments back to the bank. The reverse mortgage is different in that you receive payments from the bank, and there are no income or debt restrictions to obtaining a reverse mortgage. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. You are still required to pay your real estate taxes and your homeowners insurance just like a conventional loan.

4. Do I still own my home or does the bank own it?
YOU still own your home.  You are not signing over your ownership rights to the property, you are merely taking a loan against the equity in the home that will be repaid when you sell your home are no longer use it as your primary residence.

5. Can the lender take my home away from me if I outlive the term of the  loan?
No! The lender cannot take your home away.  You do not need to repay the loan as long as you or one of the titled borrowers continues to live in the house and keeps the real estate taxes and homeowners insurance current. You can never owe more than your home's value on a reverse mortgage.

6. Will I still have an estate that I can leave to my heirs?
Yes, when you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs, not the bank. 

7. How much money can I get with a reverse mortgage?
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. See AARP’s reverse mortgage calculator to determine how much you could borrow:  AARP Reverse Mortgage Calculator

8. How do I receive my money?
There are 5 ways you can elect to receive your money:

  • Tenure - equal monthly disbursements to you as long as at least one borrower lives and continues to occupy the property as a principal residence.
  • Term - equal monthly disbursements to you for a fixed period of months.
  • Line of Credit - unscheduled distributions or in installments.  Can be taken at any time or amount that the borrower chooses until the line of credit is exhausted.
  • Modified Tenure - combination of line of credit with monthly disbursements to you for as long as the one of the borrowers continues to occupy the home as a primary residence.
  • Modified Term - combination of a line of credit with monthly disbursements to you for a fixed period of months of your choosing.

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