How a Reverse Mortgage Can Benefit Homeowners 62 or Older
Reverse mortgages give eligible homeowners the ability to access
the money they have stored up as equity in their homes. They are
designed to build seniors' personal and financial independence
by providing funds without the requirement of a monthly payment
for as long as they live in the home.
Homeowners age 62 or older may benefit greatly by discussing the
possibilities and options a reverse mortgage can afford them
with a lender or counselor. These types of loans offer a way to
borrow against the equity in your home to create a stable,
continuous and tax free source of usable income or a substantial
source of supplemental income, all without having to change your
current living conditions.
The best part of this type of loan is that you aren't required
to repay any part of the loan as long as you live in your house
and don't breach any of the terms and conditions of the reverse
mortgage. However it is important that you are diligent in
researching this unique loan product as it may not be right for
every situation. This is why we encourage any potential borrower
interested in a reverse mortgage to investigate their options
first with a HUD certified counselor or lender.
Other great sources of information include family and friends
who have experience dealing with reverse mortgages before,
nonprofit organizations offering help to seniors', the AARP,
American Society on Aging, and authority sites such as
http://mortgagesecrets.info which provide helpful articles and
resources concerning the reverse mortgage industry.
While simple to understand in theory, it is important to know
how reverse mortgages work. The reverse mortgage loan product
got its name due to the fact that instead of making mortgage
payments, the lender actually pays the borrower creating a kind
of inverse relationship compared to the traditional mortgage
product. The source of funds for the money received is the
equity stored in your home. The unique feature of this loan is
that unlike conventional mortgages where the loan balance
becomes smaller each moth you make a payment, the loan balance
of a reverse mortgage grows larger over time.
The principal on the loan increases with each payment received,
this includes interest and other charges accrued each month on
the total funds advanced to you. You retain ownership of your
home in all reverse mortgages, and many do not require repayment
for as long as you occupy your home, pay your property taxes and
hazard insurance charges, and continue to maintain the property.
When you leave your home permanently your loan balance becomes
due. It is also important to note that your legal obligation to
repay the loan cannot be more than the market value of your
house at the time you leave the property. This means that your
lender can never require repayment of the loan from your heirs
or from any asset other than the property itself.
Today the 2 major reverse mortgage loan types provided by the
Fannie Mae (Federal National Mortgage Association) are the HECM
and Home Keeper. These loans assure the borrower that he or she
will never owe more than the loan balance or the value of the
property, whichever is less, and no assets other than the home
must be used to repay the debt.
Also unlike conventional mortgages these loan types have neither
a fixed maturity date nor a fixed mortgage amount. Many
borrowers familiar with the home equity loan are often times
skeptical about reverse mortgages and simply see it as a
different type of home equity loan and sometimes even think it's
a scam.
For this reason it is important to understand the difference
between home equity loans and reverse mortgages. With a HELOC
(Home Equity Line of Credit) you must make regular monthly
payments to the lender in order to repay the loan, in fact, your
repayments begin as soon as your loan is made. If you fail to
make the monthly payments on a traditional home equity loan, a
mortgage lender can foreclose on your home, putting you in a
position where you either have to sell your home to repay the
loan or lose it to the lender.
Another notable difference is the fact that some home equity
loans also require you to re-qualify for the loan each year, and
if you fail to re-qualify, the lender may require you to pay the
loan in full immediately. In addition, in order to qualify for a
traditional home equity loan, you must have sufficient funds and
debt-to-income ratio in order to be approved on the loan.
Reverse mortgages however, such as the HECM and the Home Keeper
Mortgage, do not require monthly repayments, saving you from the
need to qualify through the traditional and often times
difficult loan process. In fact, repayment of these loans is not
required as long as your property remains your primary residence
and you stay current in paying your property taxes and hazard
insurance charges. Another stipulation that makes the reverse
mortgage so special is the fact that your income does not become
a factor in qualifying for these loans, nor are you required to
re-qualify each year.