What You Need to Know About Reverse Mortgages
Reverse mortgages have received a bad rap over the years, but there are cases where they make for an excellent financial support system. Put in general terms, reverse mortgages represent equity loans secured using your home as collateral designed to defer interest.
The Home Equity Conversion Mortgage, or HECM, is probably the most typical kind of reverse mortgage. This financial vehicle has been around for a while, as it was first brought into existence by the Federal Housing Administration (FHA) back in 1989.
As most people understand, standard fixed or variable rate mortgages provide a payment to borrowers for the purpose of buying a home and must be paid back over a set period time – typically 15 or 30 years. Where reverse mortgages are different is in the fact that they do not need to be repaid until the loan has reached maturity. Homeowners are not required to pay any of the interest or mortgage payments and may stay in the home until death or their decision to move as long as insurance and tax payments are kept current.
Do I Still Own My Home with a Reverse Mortgage?
Absolutely. In fact, you still make insurance and tax payments as normal, and you retain full ownership and use of the home. You receive monthly statements that track the interest growth on your reverse mortgage total, but you do not pay anything, as the mortgage does not come due until the end of its term.
What Are the Qualifications to Receive a Reverse Mortgage?
Permanent residents and citizens of the United States age 62 or older may qualify for reverse mortgages so long as they maintain a substantial equity position in the home. Your loan amount depends on a variety of factors include the age of the youngest owner, current mortgage rates, and your home’s appraised value. No credit score or income information needs to be provided, as you are not making monthly payments on your reverse mortgage. The main stipulations are that you need to continue paying property taxes and homeowner’s insurance and must remain living in the home.
Can I Choose to Pay Back My Reverse Mortgage And Keep My Home?
Absolutely. If you desire, you may begin making payments back to the loan company on a voluntary basis to pay the mortgage in full or in part without incurring any sort of penalty. If you choose to do repay your reverse mortgage loan, you may also take some of the interest payments you make off your yearly tax bill. Consult your tax professional for details. Additionally, you may pay the loan off in full at any time by selling your home, paying it off with cash, or refinancing your home.
How Are Reverse Mortgages Typically Repaid?
As mentioned, you may pay off your reverse mortgage on a voluntary basis. However, should you choose to let the loan run its course, the total will come due at the passing of the last surviving homeowner. The loan will also come due if the last surviving homeowner chooses to stop using the home as her or his primary residence. Any heirs to the home have up to 12 months to sell or refinance the home to pay off the remaining balance, should they choose to keep it.
Should any remaining heirs to the home not want to keep the residence, the lender typically forecloses on the home. If the foreclosure sale does not earn enough to cover the balance due on the reverse mortgage, the FHA insurance premium you paid when you closed your reverse mortgage will kick in and reimburse the lender for what balance remains.
Who Are the Best Candidates for Reverse Mortgages?
Reverse mortgages are for anyone who needs money to take care of life’s unforeseen circumstances. These mortgage programs are perfect for anyone who wants to use the equity they have built up in their home without having to move from it.
Who Should Not Consider Reverse Mortgages?
People who do not foresee living in their home for a long period of time after the reverse mortgage has been taken out should not seek a reverse mortgage? There are costs you must pay up front (appraisal fees, etc.) for this mortgage just like any other, which you would want to avoid paying as well.
Do I Pay Taxes on Reverse Mortgage Funds?
No. Any funds received from reverse mortgages are not considered income and are not taxed.
Am I Required to Go Through Mortgage Counseling to Get a Reverse Mortgage?
Yes. Per federal guidelines, you are required to go through a face to face or phone-based counseling session pertaining to reverse mortgages. Certification of your completing such a session is sent to your mortgage lender.
Is There Anything Else I Should Know About Reverse Mortgages?
There is a chance that the inflow of cash from your reverse mortgage may move you outside of the range of benefits received from public assistance programs (Medicare or Medicaid) should you currently receive these. Check with your tax professional for details.
All reverse mortgages carry the same safeguarding measures discussed in this article. So, you should shop around to find mortgage lenders who service their own loans, if this is important to you. You may also find that there are better interest rates with different lenders, so be on the lookout for these as well.
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