How Do Reverse Mortgages Work? Reverse Mortgage Explained
In today’s faltering economy, many people find themselves suddenly seeing their retirement income dashed, as they watch the financial security they spent years building evaporate. Enter reverse mortgages. After living on a tight budget, in order to pay off their home and enjoy a leisurely retirement, their savings may have been lost in one of the many financial debacles of the last decade, or they may simply realize that their estimated cash flow needs fall short of reality.
Fortunately, a relatively recent financial vehicle, the HECM or Home Equity Conversion Mortgage, can offer a means to salvage those plans, or to simply allow something better than a mere existence. Often known as a “Reverse Mortgage”, this is a way in which senior citizens, with substantial equity in their home, can receive payment from their lender, against that equity, for the entire time they live in that home.
Reverse Mortgage Explained
There are a number of reverse mortgage pros and cons so it’s important to understand them fully. Typically, a reverse mortgage is structured so that the homeowners receive monthly payments, until such time as they all either die, move out or sell the home. The payments received, plus accrued interest, will be paid from the proceeds of the sale of the home at that time. Depending upon the jurisdiction, points, mortgage insurance, closing costs and other fees may also accrue. These can usually be rolled into the loan, to avoid out of pocket expenses for the homeowner.
Eligibility for a reverse mortgage is quite simple. All owners listed on the deed must be at least 62 years of age and the remaining loan debt must either be zero or nearly so. No credit history or income is required to qualify. Payments continue until such time as the last surviving homeowner ceases to own or live in the home. The property must be sold at that time, which means it cannot be bequeathed to family members.
The reverse mortgage loan value, which determines the amount of the monthly payments, is set by the FHA (Federal Housing Authority), in accordance with the homeowners’ ages and the home’s value. Any necessary repairs must typically be made, to bring the condition of the home up to an acceptable level. Under some circumstances, the payment may be received in the form of a line of credit, or a lump sum. In some states, it is even possible to purchase a new home with the proceeds of the HECM.
Reverse mortgages are a perfect solution for some qualifying homeowners, but not for all. You can get more information from HUD (Dept. of Housing and Urban Development). It costs nothing to investigate, and it could be the best move you ever made.
© How Do Reverse Mortgages Work? Reverse Mortgage Explained
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