Reverse Mortgage Considerations
Interest Rates and Fees
best loan period
What is a Reverse Mortgage?
A reverse mortgage is a loan available to homeowners 62 or older, which allows them to convert part of the equity in their homes into cash. The loan is known as a reverse mortgage because instead of making monthly payments to a lender, as per traditional mortgage, the lender makes payments to the borrower.
How does it work?
Before signing on the dotted line for a reverse mortgage, it is crucial to know how they work and what to expect. To begin with, note that you may not be able to borrow the full value of your home – even if paid. The amount you can withdraw varies depending on the age of the youngest or non-borrowing spouse, interest rates and the lesser of the appraised value of your home, the limit FHA mortgage HECM ($ 726,525 in 2019), or current selling price.
If you opt for a reverse mortgage with a variable rate, on the other hand, you can choose to accept:
- Equal monthly payments provided at least one borrower lives in the property as your principal residence
- Equal monthly payments for a fixed period of months agreed in advance
- A line of credit that can be accessed until exhausted
- A combination of a line of credit and fixed monthly payments for as long as you live at home
- A combination of a credit line more fixed monthly payments over a fixed period of time
Who is eligible?
If you wonder whether a reverse mortgage might work for your situation, it is important to understand how you can qualify. We’ve talked about the age requirements, and the fact that you must be 62 years or older to apply. However, if one spouse is under 62, you may still be able to get a reverse mortgage if you meet other eligibility criteria. For example:
- You must outrightly own your home or have a single primary lean you hope to borrow against.
- Any existing mortgage has to be paid using the proceeds of your reverse mortgage.
- You must live in the home as a your primary residence.
- You must keep up with property taxes, homeowners insurance and other mandatory fees such as homeowners association requirements.
- You must take care of the property and maintain it in good working condition.
- Your home must be a single family home, a property of multiple units with up to four units, a manufactured home built after June 1976, a condo or a house do not qualify.
- Borrower does not have to make monthly payments towards your loan outstanding
- Funds can be used for living expenses, debt payments, health expenditures, and more
- Proceeds can help borrowers enjoy their retirement life
- Non-borrowing spouses who are not on the mortgage can stay at home after the borrower dies
- Borrowers should take good care of the house and pay property taxes and homeowners insurance
- A reverse mortgage forces you to borrow against the equity in your home, which could be a major source of wealth
- Fees and other closing costs could be high
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