If you are a retiree and strapped for cash on that fixed income, you have a way out. You can always tap into the equity of your home with a reverse mortgage. A reverse mortgage can also be called an HECM, or home equity conversion mortgage. This is a special kind of home loan that is meant for homeowners who are older. It doesn’t require any monthly payments to repay it.
There are rules that need to be followed and criteria that must be met for this type of mortgage. The age of the borrower isn’t the only factor. If you are interested in learning more about a reverse mortgage, you might want to check out this guide to a reverse mortgage when you finish reading this article.
Types of Mortgages
Basically, there are two main kinds of mortgage loans out there. First, you have your more traditional type of mortgage on the home loan you already have. Then, there is the reverse mortgage. It is important if you are considering a reverse mortgage that you have a good understanding of them and how they work.
This process of learning should be familiar to those who have enrolled in Medicare. It is best to find out all you can about your options there too before making any major decisions.
If you happen to be at least 62 years of age and have managed to either pay your mortgage way down, or off, you might just be able to tap into the equity of your home and turn that equity into cash. You might opt to take the money as a single lump sum, as monthly payments, as a line of credit, or combine the line of credit with monthly payouts. This type of loan differs from a traditional home equity or mortgage in that it doesn’t need to be repaid as long as you are living in the house, and you don’t have to meet stringent credit requirements or income requirements in order to qualify.
The FHA imposed stricter limits on lending and combined with property values that are declining, a massive bite was taken out of the market when it comes to reverse mortgages. Because of this, lenders are looking to drum up new business, and this extends to reverse mortgages. In order to attract more borrowers, some of the lenders are even waiving their upfront origination fees for the loans as well as some of the other up front charges. This can mean savings of up to $10,000!
With the upfront costs being lower, you might not even need to stay in your home for quite a few years in order to justify how much the loan costs. You might want to sell your home, but the market currently stinks and you might need to do some repairs in order to attract buyers. You might consider taking out a reverse mortgage in order to finance those improvements. Then you can just pay off that mortgage if you sell the house and you can pocket the difference!
The Older the Better
The amount of money you will be able to borrow will depend on a few things. This can include interest rates, the value of your home, and your age. The more valuable your home is, and the older you are, the more money you will be able to get. The calculation of the loan will factor in fees and interest that will accrue over time, and this can reduce the amount of the equity that you can tap into.
If you opt to take your money in a lump sum, you have to get the total amount that you qualify for. Interest will build for the total amount until it is completely paid off. If for some reason you aren’t in need of the total amount that you qualify for, choose either monthly payouts or a line of credit and then you will only pay interest for the amount that is used.
Your Spouse has Protection
In years gone by, if only one person was listed as the borrower with a reverse mortgage, and that person moved away or died, the reverse mortgage would need to be repaid and the remaining spouse would need to find a new residence. A new rule, though, allows for the non–borrowing spouse to remain in the home while it is their primary residence. Remember that you need to be at least 62 years of age to be a borrower in a reverse mortgage, so if your spouse happened to be too young to be listed as a borrower, now they can’t be kicked out of their home in the event something happens to you.