Did you know senior citizens from across the world remain among the poorest demographic? Which is why it is so important to inform the seniors in our country about all of the available options, among such as, taking a reverse mortgage to help resolve their debts.
If you have enough home equity, but you are experiencing cash flow difficulties or struggling to finance daily expenses, why not take the reverse mortgage?
In this guide, we feature what seniors need to know discussing the major reverse mortgage points below:
- What is a reverse mortgage?
- How does a reverse mortgage work?
- What do I need to apply for the reverse mortgage?
- How much can you receive?
- How will the loan proceeds be paid out?
What is a Reverse Mortgage?
The reverse mortgage is a type of loan that allows homeowners to access a portion of their property equity. Therefore, a reverse mortgage is a loan that is secured by your home, but you do not pay any income taxes or monthly mortgage repayments.
To qualify for a reverse mortgage, the borrower is expected to provide proof that he or she lives in the home and continues to, for as long as they have the loan. Therefore, the amount that is borrowed falls due when the borrower stops using the property as a primary residence, or after the death of the borrower. The homeowner must also show they can afford to maintain the property taxes, insurance and HOA dues current.
The Home Equity Conversion Mortgage (HECM) was introduced in the year 1989 by the Federal Government, through the Federal Housing Administration, which is under the Department of Housing and Urban Development. The reverse mortgage has been instrumental in helping senior homeowners to help finance their retirement. By accessing their home equity, seniors are able to live stress-free knowing that they can finance their medical bills and that their loans can be repaid through the HECM.
How does a Reverse mortgage work?
The reverse mortgage allows homeowners aged 62 years and up to borrow from their home equity. As explained above, they do not have to make any monthly repayments! The borrowed amount can be paid out in lump sum or through a structured monthly repayment plan. So, when is the amount you have borrowed repaid? The outstanding loan is repaid when the last surviving borrower vacates the property. Here is a simple overview to explain how the reverse mortgage works.
- The borrower is allowed to access a certain percentage of the home equity
- The percent that is borrowed depends on the age of the youngest borrower and the available home equity
- The borrower is not expected to make any monthly repayments on the reverse mortgage. However, one might opt to repay the loan voluntarily.
- The borrowed amount is available tax-free and there is no limitation on how to use the amount.
- The outstanding amount is due when the borrower has sold the property or when they pass away.
- The remaining home equity after repayments are made belongs to the heirs.
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What Do I Need to Apply for the Reverse Mortgage?
Not everyone qualifies for the reverse mortgage. Just like conventional loans, there are specific conditions to fulfill, so that you can qualify for the reverse mortgage. Here is an overview of the conditions that the borrower must meet.
1. The Borrower Requirements
- At least one of the homeowners should be 62 years of age or above
- Ensure that you reside in the home as the primary residence
- Show that you are capable of paying property taxes home insurance, residence association fee and other fees relating to the property.
2. Property Requirements
- It is a single-family home or a two to four owner-occupied home
- Meets the HUD requirements
3. Additional Requirements
- Meet the HUD-certified counselor for education on reverse mortgages
To ascertain that you qualify for the reverse mortgage, talk to any of our loan officers today and present the required documentation.
How much can you receive?
When a loan is mentioned, a question that lingers in borrowers minds is how much they qualify to apply for. For the reverse mortgage, some factors are taken into consideration to decide how much the borrower can apply for.
The amount available is dependent on:
- The age of the youngest borrower
- The current interest rate
- The available home equity
- As of 2019, the HECM lending limit stood at $726,525 or up to $5,000,000 for the Jumbo reverse mortgage.
How will the loan proceeds be paid out?
There are different options when it comes to receiving the loan payout.
Option 1: Line of Credit-: This is a popular option allowing the borrowers to receive the cash only when there is a need to pay for the living expenses. Therefore, it is helpful to those who do not need access to the cash immediately.
Option2: Term and Tenure Disbursement: this gives the borrower access fixed amounts for a specified amount of time.
Option 3: Lump Sum: the borrower is allowed to take the whole amount. This is ideal when you are funding a project like a home renovation or when making medical payments.
As illustrated above, the reverse mortgage requires no monthly repayments. Therefore, so long as the borrower uses the property as a primary residence, you are under no pressure to repay the amount. Are you contemplating to apply for the reverse mortgage today? Talk to a qualified lender today to find out how much you are eligible to borrow.