Reverse Mortgage Basics
What Is A Reverse Mortgage?
A reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), is a way to turn the equity locked in your home into tax-free cash without having to make monthly mortgage payments other than property taxes and homeowner's insurance.
A reverse mortgage is a government-insured loan that enables you to gain financial independence from your ever-increasing living expenses. The bank NEVER owns your home. You continue to own your property and can live there as long as you wish, provided you meet the terms of the loan, which includes maintaining the property, paying your property taxes, and insurance. The terms to own your home under a reverse mortgage are very much the same as if you owned it without one.
Who Would Want a Reverse Mortgage?
Everyone approaching, hoping for, or already in retirement should take time to learn about how a reverse mortgage works.
Reverse mortgages have made a significant impact in the lives of those who had mortgage debt or limited retirement funds.
However, it's a surprise to many that a reverse mortgage is not just for those with an immediate need. It's used as a strategic retirement option for those who may have adequate resources elsewhere yet want more peace of mind and a way maximize all retirement resources. For these borrowers we work closely with their financial planner to identify whether it is appropriate.
What You Can Do With It
Your equity can be used for almost anything, including paying off your existing mortgage(s), eliminating credit card debt, medical and other bills, or simply improving your lifestyle. It's up to you to use your money responsibly.
There are many other strategies for those who have adequate resources, but who want additional flexibilities and protections. If you've got a home equity loan currently, it's time to change to a reverse mortgage growing Line of Credit.
Is a Reverse Mortgage Loan Right for You?
A reverse mortgage can be the right choice when you know the facts and understand your obligations.
How Do I Qualify?
It's actually fairly simple. Qualification is based on these key factors:
- You must be 62 years old or older, and
- You must live in and own your home (must be your principal residence)
- Your age, appraised home value, and current interest rates are used to calculate the amount you can receive in cash or to pay off mandatory existing obligations like a current mortgage loan.
- You must demonstrate a willingness and capacity to maintain the property, and to pay your property taxes and insurance. See Financial Assessment.
There are other factors to understand:
- Qualification is based on the youngest borrower on title
- The property must be FHA approved through an appraisal.
- You must reside at the property at least six months and one day per year.
How Much Money Could I Qualify For?
Your age, appraised home value, and current interest rates are used to calculate the amount you may receive. One of the benefits of a reverse mortgage is the older you are the more money you qualify for. Unless you have immediate mandatory mortgage payoffs or debts, what you qualify for today doesn't really matter. Your reverse mortgage line of credit grows monthly, which means if you don't use it much, your available line grows tax-free at a rate better than most investments. For example, if your home value is $300,000, the amount you may receive is based on your age.
Reverse Mortgage Advantages
There are many resources on our site that cover benefits more specifically. Here are some of the most common and important considerations:
- Make no monthly mortgage payments for as long as you live in your home. All you need to do is maintain the property and continue paying your home insurance and property taxes.
- Continue to live in the comfort and security of your own home.
- Receive tax-free cash (consult your financial advisor).
- Choose how you want to receive the money—lump sum, monthly payment or a combination of both.
- Repay the loan at any time with absolutely no penalty.
- It is a non-recourse loan, which means you will never owe more on the loan than the house is worth.
- Your line of credit grows monthly