If you have owned your home for a long time and wish to take advantage of the available equity in your home, a reverse mortgage can be a good option for your retirement. You can qualify for a reverse mortgage if you are at least 62 years or older and have at least 50% equity in your home (meaning that any existing mortgage balances on your home cannot be more than half of your current property value).
What makes this type of loan attractive is the fact that neither income nor credit history is considered by lenders in determining who qualifies. Since no payments are required by the borrower, the ability to pay back the loan doesn’t matter. Rather, the most important qualification criteria for a lender are the age of the homeowner, the value of the home and the amount of available equity in the home. If you are thinking of retirement and want to avoid making payments, have a need and use for the cash and want to stay in your home, a reverse mortgage can be the right way to receive either extra income or security in retirement.
A reverse mortgage for seniors is a loan that is designed to give older homeowners the ability to receive tax-free income without having to make payments, sell their home or affect their hold on their title. It is a unique mortgage because they are no payments required from the borrower. Instead the homeowner receives cash from the lender and in turn, the lender receives a portion of the homeowner’s equity. The loan is repaid when the borrower ceases to live in the home; this can be a result of the homeowner selling the home, moving out (and it is no longer their primary residence), or passing away. In any of these cases, the lender receives the proceeds of the sale of the home to pay off the balance of the reverse mortgage loan. If the proceeds of the sale exceed the outstanding loan balance, the difference is paid back to the borrower or to their estate.
Another unique aspect of the reverse mortgage is the counseling required for all prospective borrowers considering a reverse mortgage loan. All lenders are required by law to provide this counseling to ensure that the homeowner is aware of all the terms and conditions of the loan, and that they and their support group has closely considered whether or not a reverse mortgage loan is right for them.
Reverse mortgage loans can be taken either as a line of credit or as a lump sum. There are actually more options to consider, but your reverse mortgage lender will be able to talk you through all of these options. As a prospective borrower, you should first consider how you will use the proceeds and whether it makes sense to receive the cash over time or all at once. You should also consider the fact that by taking out a reverse mortgage, you will be using up part or all of an asset, which might otherwise be left to children or other heirs. Since the interest that you will incur on the loan is actually added to the balance of the reverse mortgage against your property, your equity is usually eroding (unless the value of the home is increasing at a rapid rate), and there will be less equity available when the lender actually sells the property.
The reverse mortgage industry is heavily supported by HUD (US Department of Housing and Urban Development) and the heavy majority of reverse mortgage loans are insured by HUD’s Federal Housing Administration (FHA). The FHA provides heavy oversight and regulation, and the absence of private reverse mortgage products has kept the costs and overall expense of reverse mortgages in reasonable check. However, fees on a reverse mortgage are generally higher than traditional mortgages, and therefore, you would want to make sure that you’ll be in your home for at least a few years to avoid throwing away money on a loan on which you’ll never realize the benefits. But the fact that would provide you with immense succor is that you will never need to leave your home once you get a reverse mortgage, unless you choose to do so. Even if you “out live” your loan, the lender will not be able to take the home or force you to leave.
A reverse mortgage can be a great option for your retirement. But before you take your decision, it is advisable that you establish your goals, learn about your options, and make the decision that’s best for you and your specific needs.