By Kirsten Goebeler, SRES Specialist at RE/MAX Fine Properties
While many people have a negative view of reverse mortgages, a reverse mortgage can be a great benefit for many seniors over the age of 62. Simply put, a reverse mortgage converts home equity into cash.
Money is paid to the homeowners over the years, plus value appreciation is paid back to the homeowners, while homeowners still retain the title to the home and continue to live in the home. By tapping into home equity, homeowners can increase cash flow or change their living situation to enhance their quality of life without having to worry about finances.
Uses for a reverse mortgage could be as simple as paying off credit card debt, paying current mortgage or providing an income to the borrower as they settle into their retirement years. Some homeowners have opted to use it to pay for in-home care, medical expenses, and long-term care insurance where others have used it to simply buy a second home. There are many options available for these needs that a mortgage lender can discuss with a homeowner when considering a reverse mortgage.
A reverse mortgage amortizes negatively, meaning the payments that the borrower receives from the reverse mortgage are added to the balance owed at the end of the loan and interest accrues at a fixed or adjustable rate. However, it’s important to note that the borrower will never owe more than the property is worth.
Events that could cause a repayment would include moving to another home for the main residence, meeting the specified maturity date, death of the last surviving homeowner, sale of the property, failure to pay taxes or insurance or failure to make repairs. There is also no pre-payment penalty. The borrower can pay off the loan any time.
There are several obligations a borrower must fulfill in order to qualify, including:
The borrower must live in and maintain the home to avoid any repayment obligations.
The borrower or borrowers must be at least 62 years old.
The borrower must outright own the property or have paid down a considerable amount of the loan.
The borrower must not be delinquent on any federal debt.
The borrower must have some sort of financial resources to be able to make the payments, taxes, insurance, etc.
All borrowers must complete a HUD-certified counseling session.
The mortgage must be for a single-family home, FHA approved condo or co-op, manufactured home built after 1976 on a permanent foundation or two- to four-unit homes with a least one owner occupied unit.
For more information on reverse mortgages, feel free to reach out to your local bank or preferred mortgage lender.