What To Know About Reverse Mortgage

Table Of Contents:

What exactly is a Reverse Mortgage?

Like a standard mortgage, a reverse mortgage enables homeowners to borrow money while using their house as collateral. When you take out a reverse mortgage loan, the title to your property remains in your name, just as with a standard mortgage. However, borrowers do not make monthly mortgage payments with a reverse mortgage loan, unlike a typical mortgage. When the borrower no longer resides in residence, the loan is repaid. Each month, interest and fees are added to the loan amount, which causes it to rise. Homeowners who take out a reverse mortgage must pay property taxes and homeowners insurance, utilize the property as their primary residence, and maintain the house in excellent shape.

What is the Process of a Reverse Mortgage?

When you have a standard mortgage, you make monthly payments to the lender to purchase your property over time. A reverse mortgage is a loan in which the lender pays you back. Reverse mortgages take a portion of your home’s value and turn it into payments to you – essentially, an advance payment on your home equity. The money you get is normally tax-free. In general, you are not required to repay the money for as long as you reside in your house. You, your spouse, or your estate would repay the loan if you died, sold your house, or moved out. It is sometimes necessary to sell the house in order to repay the debt.

Single-purpose reverse mortgages – issued by certain state and local government organizations as well as non-profits; proprietary reverse mortgages – private loans; and federally-insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs) – are the three types of reverse mortgages.

The Benefits of a Reverse Mortgage

  • A reverse mortgage is a loan option that can help homeowners and homebuyers age 62 and older live a more comfortable retirement.Benefits of a Reverse Mortgage
  • You continue to live in your home and have ownership of it. You must meet your loan obligations, as well as keep up with property taxes, insurance, maintenance, and any homeowners association fees, as with any mortgage.
  • You have the option of receiving your funds in the form of a lump sum, a line of credit that you can draw on as needed, a steady stream of monthly advances for a set period, or as long as you live in the home or a combination of these options. Borrowers who choose a fixed-rate loan will receive a lump sum payment in a single disbursement, and only adjustable-rate mortgages have additional loan payment options.
  • The funds from your reverse mortgage loan can be used to pay off your home’s existing mortgage. While there will still be a lien on your home for the outstanding amount of the reverse mortgage, you will be free of the monthly mortgage payment expense because you will not be required to make monthly principal and interest payments on the reverse mortgage. You must, as with any mortgage, meet your loan obligations, as well as keep up with property taxes, insurance, and maintenance.
  • No monthly mortgage payments are required as long as you live in the home and meet your obligations to pay property taxes, homeowners insurance, and maintain the property. You must, as with any mortgage, meet your loan obligations, as well as keep up with property taxes, insurance, and maintenance.
  • Closing costs and ongoing fees, such as the Federal Housing Administration (FHA) Mortgage Insurance Premium (MIP), can be financed with a reverse mortgage loan, resulting in low out-of-pocket expenses.
  • Loan proceeds are not generally taxable income. (This is not tax advice.) Consult a tax advisor.)
  • In most cases, a reverse mortgage loan has no impact on Social Security or Medicare benefits. However, you should consult with a financial professional to determine the potential economic consequences of obtaining a reverse mortgage loan.
  • A non-recourse loan is a reverse mortgage loan. This means that neither you nor your heirs are personally liable for any portion of the mortgage that exceeds the value of your home when it is repaid.
  • If the value of your home rises in the future, you may be able to refinance your reverse mortgage and access even more loan proceeds.
  • After the loan is repaid, any remaining home equity belongs to you or your heirs.