Reverse Mortgages Gaining Popularity in these Tough Times
Wednesday - December 31, 2008
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What is a reverse mortgage?
A reverse mortgage is a loan that enables senior homeowners, age 62 and older, to convert part of their home equity into tax-free* income-without having to sell their home, give up title to it, or make monthly mortgage payments. The loan becomes due when the last borrower (s) permanently leaves the home.
* Consult Financial Advisor. Not all products available in all states.
How is a reverse mortgage like a home equity loan? How is it different?
Both a reverse mortgage and a home equity loan use the equity you have built up in your home to provide you with readily available cash.
They differ in that with a home equity loan you must make regular monthly payments of principal and interest. However, with a reverse mortgage you do not make any required monthly mortgage payments for as long as you stay in the home.
Can my current income influence my ability to get a reverse mortgage?
No. Since reverse mortgage borrowers need not make monthly repayments, there are no income qualifications.
What are the advantages of a reverse mortgage?
There are many. Here are a few of the most significant: *Remain independent. A reverse mortgage allows you to remain in your home and retain home ownership.
*Stay in your home. It allows you to remain in your home and retain home ownership.
*No monthly mortgage payments required. You need not pay back the reverse mortgage loan nor make any monthly mortgage payments until you permanently move out of the home.
*Tax-free money. Because the money you receive from a reverse mortgage is not considered income, it is tax free* and will not affect your Social Security or Medicare benefits.
*Freedom and flexibility. The money you get from a reverse mortgage is yours to use in any way you choose.
* Consult Tax Advisor I’ve heard that with a reverse mortgage the lender would own my home. Is this true?
It’s absolutely false. The borrower retains title to the property. The reverse mortgage lender is merely extending a loan to the borrower.
Because the homeowners retain title, they remain responsible for the payment of property taxes, hazard insurance, and maintaining the home in reasonable condition - just as they would with a standard first mortgage or home equity loan.
Can I refinance a reverse mortgage, as I would be able to do with a traditional home mortgage?
Yes. Refinancing can make sense if your home either increases in value, the interest rates drops or the maximum lending limit increases. Keep in mind that when deciding to refinance a reverse mortgage, it is important to compare the amount of benefit versus the cost of the loan before making this decision. The amount of benefit received should be twice the amount of the cost to refinance the loan.
Can a reverse mortgage lender take my home away if I outlive the loan?
No they cannot. And the loan is not due at that time either. In fact, you don’t need to repay the loan as long as you or another borrower continues to live in the house as the primary residence and keep the taxes paid and hazard insurance in force.
How do you determine the amount of cash I am eligible for?
The amount you can borrow depends on several factors, including your age, the type of reverse mortgage you select, current interest rates, the appraised value of your home and FHA’s lending limits for your area. In most cases, the older you are, the more valuable your home, and the less you owe on it, the more money you can get.
Are there any limits on how I use the money I receive from a reverse mortgage?
You can use the money for virtually anything you choose, from daily living expenses, home improvements, healthcare expenses, paying off existing debts, or simply enhancing your retirement years. For many people, the money provides a “financial security blanket,” in case unexpected expenses arise.
It is important to know that with adjustable rate mortgages, an increase in the interest rate could affect the amount of money available to borrow in the future and the amount of money owed when the loan becomes due.
Is there a choice in how I receive the cash from my reverse mortgage?
Most definitely. With most reverse mortgages you have a wide range of payment options, one of which may be ideal to meet your financial needs.
*You can choose to receive the money all at once, as a lump sum.
*You can receive equal monthly payments as long as one of the borrowers lives and continues to occupy the property as a principal residence.
*You can choose to receive equal monthly payments for a fixed period of months.
*You can get a line of credit; which allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted. This is the most popular option, chosen by more than 60% of reverse mortgage borrowers.
*You can opt for a combination of line of credit with monthly payments for as long as the borrower remains in the home.
*Or, finally, you can choose a combination of the above. Who can qualify for a reverse mortgage?
Seniors 62 years of age or older may qualify. There are virtually no income or credit qualifications.
I still owe money on a first or second mortgage. Can I still get a reverse mortgage?
Yes. You may be eligible for a reverse mortgage even if you still owe money on a first or second mortgage. The funds you would receive from the reverse mortgage would be used to pay off whatever existing mortgages you have on the property.
Would a home that is in a “living trust” be eligible for a reverse mortgage?
Yes. In most cases a homeowner who has put his or her home in a revocable living trust can usually take out a reverse mortgage. A review of the trust documents would be conducted by the reverse mortgage lender to determine if anything in the living trust would be unacceptable.
Are reverse mortgage interest rates fixed or variable?
Most reverse mortgages extended to seniors to date have variable rates that are tied to a financial index and will vary according to market conditions. In addition, Financial Freedom offers a fixed rate HECM program.
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