Reverse mortgages can be a great option for retirement but many people do not know about this financing tool. Here Liz Ciccone, Reverse Mortgage Specialist with RMF (Reverse Mortgage Funding) answers some frequently asked questions about reverse mortgages.
What is a reverse mortgage?
A reverse mortgage is a home-secured loan that’s exclusively for homeowners and homebuyers age 62 and older. It allows borrowers to convert some of the equity in their home into income-tax-free funds. (Not tax advice, consult a tax professional.) There are different loan products to choose from that offer you options on what interest rate you are charged, how much money you can access, and how you receive your payments. Unlike a regular “forward” mortgage or traditional home equity loan or home equity line of credit, there are no monthly principal and interest payments as long as at least one of the borrowers lives in the home as their primary residence. As with any mortgage, in order for the loan to remain in good standing the borrower must also keep up with property-related taxes, insurance and upkeep.
How is a reverse mortgage different from a traditional home equity loan or home equity line of credit?
A reverse mortgage offers certain advantages:
- With a traditional home equity loan or home equity line of credit, you must make monthly principal and interest payments on the balance while you live in the home – with a reverse mortgage, you don’t. Your reverse mortgage balance, including accrued interest and fees, does not have to be repaid until you sell the home or permanently leave the home, as long as you meet your loan obligations (which includes keeping current with property-related taxes, insurance and upkeep).
- With a reverse mortgage line of credit, the unused amount in your credit line actually grows over time – giving you access to more available funds. This means that the less you take out up front, the more will be available for you later.
- And the lender cannot “freeze” or reduce the line of credit, as long as you fulfill your loan obligations – so it will be there if and when you need it.
What are the basic requirements for a reverse mortgage?
To be eligible for a reverse mortgage, you’ll need to meet the requirements set by the federal government:
- All borrowers must be age 62 or older (this applies to all co-owners listed on the home’s title).
- The home must be your principal residence. And it must meet standards set by the United States Department of Housing and Urban Development (HUD) on property type and condition. You may be able to use your reverse mortgage to pay for any required repairs in order to meet these standards.
- Eligible property types include single-family homes, 2-4 unit properties, manufactured homes meeting certain criteria, condominiums that are approved by the Federal Housing Administration (FHA), and townhouses. Co-ops do not qualify.
How much money can I get?
The specific amount depends on several factors, including:
- Your age
- The type of reverse mortgage you select
- Current interest rates
- Appraised value of your home
- Federal Housing Administration (FHA) lending limits
HUD also regulates the amount of money that can be withdrawn during the first year of your reverse mortgage. This is to help preserve your home equity for a longer period of time.
When will the principal and interest charges become due?
The loan must be paid in full when one of the following occurs:
- A “maturity event” – the loan becomes due and payable when the home is sold, or the borrower or non-borrowing spouse meeting certain criteria no longer occupies the home as their principal residence (i.e., passes away, moves out, or vacates the property for more than 12 months).
- You fail to pay property taxes or homeowners insurance.
- You let the property deteriorate beyond what is considered reasonable wear and tear, and do not correct the problem.
Can I use a reverse mortgage to purchase a home?
Yes, with the HECM (Home Equity Conversion Mortgage) For Purchase loan, qualified borrowers can use their loan proceeds to buy a home that better suits their needs and lifestyle. It’s a home financing option that can make it easier for buyers age 62 and older to afford the home they want, while preserving more of their saving.
Provided by:
Liz Ciccone
HECM Specialist
NMLS #781623
(973) 600-5124
For more information go to http://www.urbansuburb.com
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