A reverse mortgage is a type of loan that allows homeowners who are 62 years or older to convert a portion of their home equity into cash. Unlike a traditional mortgage where the borrower makes monthly payments to the lender, a reverse mortgage allows the borrower to receive payments from the lender.
The amount of money that the borrower can receive through a reverse mortgage depends on several factors, including the age of the borrower, the value of the home, and the interest rate of the loan. The older the borrower and the more valuable the home, the more money they can receive.
With a reverse mortgage, the borrower does not have to pay back the loan until they sell the home, move out of the home, or pass away. The loan is typically repaid through the sale of the home, with any remaining equity going to the borrower or their heirs.
One of the benefits of a reverse mortgage is that it can provide additional income for retirees who may be struggling to make ends meet. It can also be used to pay off existing debts or cover unexpected expenses.
However, there are also some potential drawbacks to consider. Reverse mortgages can be more expensive than traditional mortgages, with higher fees and interest rates. They can also reduce the amount of equity that the borrower has in their home, which may impact their ability to leave an inheritance for their heirs.
Additionally, borrowers who take out a reverse mortgage are still responsible for paying property taxes, homeowners insurance, and any necessary home repairs. Failure to do so could result in the loan being called due and payable, which could force the borrower to sell their home.
Overall, a reverse mortgage can be a useful tool for older homeowners who need additional income or want to access their home equity. However, it's important to carefully consider the pros and cons before making a decision, and to consult with a financial advisor to ensure that it's the right choice for your individual needs and circumstances.
Borrower RequirementsYou Must:
- Be 62 years of age or older
- Own the property outright or paid-down a considerable amount
- Occupy the property as your principal residence
- Not be delinquent on any federal debt
- Have financial resources to continue to make timely payment of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc.
- Participate in a consumer information session given by a HUD- approved HECM counselor
Property RequirementsThe following eligible property types must meet all FHA property standards and flood requirements:
- Single family home or 2-4 unit home with one unit occupied by the borrower
- HUD-approved condominium project
- Individual Condominium Units that meet FHA Single Unit Approved requirements
- Manufactured home that meets FHA requirements
- Income, assets, monthly living expenses, and credit history will be verified
- Timely payment of real estate taxes, hazard and flood insurance premiums will be verified
Payment Plan OptionsFor adjustable interest rate mortgages, you can select one of the following payment plans:
Tenure- equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence
Term- equal monthly payments for a fixed period of months selected
Line of Credit- unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted
Modified Tenure- combination of line of credit and scheduled monthly payments for as long as you remain in the home
Modified Term- combination of line of credit plus monthly payments for a fixed period of months selected by the borrower
Mortgage Amount Based OnThe amount you may borrow will depend on:
- Age of the youngest borrower or eligible non-borrowing spouse
- Current interest rate; and
- Lesser of:
- appraised value;
- the HECM FHA mortgage limit of $970,800; or
- the sales price (only applicable to HECM for Purchase)