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REVERSE MORTGAGE

Are you looking to tap into extra equity while in retirement? Is most of your equity tied up in your home? Are you age 62 or older?

A reverse mortgage may be an option for you.

We will dive a little deeper into the details of what a reverse mortgage is, qualifications and how it works, so you are able to determine if this is the right option for you.

What is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners ages 62 or older, who own their homes with no mortgage payment. Usually, reverse mortgages are federally insured and can help you tap into your home equity.

Qualifications for a Reverse Mortgage

To be eligible, the primary homeowner must be 62 years or older. You must own your home outright and all existing mortgages must be paid off or your existing mortgages can be paid off through a reverse mortgage transaction. The property must be maintained and the primary residence you reside in, as well as up to date on current property tax, homeowner’s insurance, homeowner’s association dues and fees.

How Does it Work

Deciding to opt into a reverse mortgage means you are using your home as collateral. The proceeds are nontaxable. A reverse mortgage is much different than a regular mortgage. The lender now makes payments to you as the homeowner, rather than you making payments to the lender.

The most commonly used reversed mortgage is the home Equity Conversion Mortgages (HECMS). Different payment options can be chosen based on how you would like to receive proceeds: a lump sum, equal monthly payments, term payments, line of credit, equal monthly payments plus a line of credit or term payments plus a line of credit.

Over the life of the loan interest is added into the loan balance, homeowners are able to keep the title and the homeowner’s debt will increase as the home equity decreases.

The amount you owe to the lender each month will fluctuate over time due to interest and fees added to the loan balance each month. As the loan balance increases your home equity will decrease.

The loan will be repaid once the borrower no longer lives in the home and the proceeds from the sale of the home repay the lender the mortgage principal, interest, insurance and fees. Beyond that the proceeds will go to the homeowner or their estate. If a homeowner has passed away the heirs can pay off the mortgage to keep the home.

In your retirement years this may be a great option for you. It is important to keep all parties involved in the process, as heirs may take on debt once a family member has passed. Reverse mortgages allow for you to choose flexible payment options that may be more suited to your lifestyle and living retirement your way.