Here are some important points to know when considering a reverse mortgage:
Eligibility: To qualify for a reverse mortgage, you must be at least 62 years of age. Coming August 4th 2014, one of the homeowners may be under 62, but those under 62 are guaranteed to live in the home for life, but the payouts are solely guaranteed for the lifetime of the spouse over 62 at the close of the loan. You must also have paid off all, or most, of your home mortgage. Lastly, the home you reside in must remain your principal place of residence.
Qualifying Properties: Single Family Residences to fourplexes, manufactured homes on permanent foundations, and certain condominiums also qualify.
Mandatory Counsel: To receive a reverse mortgage, federal law requires that you first undergo counseling to understand how these mortgages work. This ensures you will make the right decision when it comes to choosing a plan. Also, the counseling service must be provided free of charge.
Tax-Free Income: One of the advantages of a reverse mortgage is that the money you receive will not be taxed. The amount you’ll obtain depends on several factors including the plan you select, the type of cash advances you choose, your age, and the value of your home. Typically, the older you are the larger the loan, as you will have more equity in the house.
Cost: The cost of a reverse mortgage have dropped considerably recent years. You can typically use the money you receive to offset the loan fees. The costs will be added to the loan balance and must be repaid with interest once the loan terminates.
Repayment: Reverse mortgages do not require any payment as long as the borrower(s) remain in the home. Should the borrower(s) pass away, sell the home, or permanently relocate, then the loan would be due in full, along with interest and additional costs. If two borrowers are on the loan and one dies, the loan would not be due since one of them still occupies the home. Taxes and insurance must always be kept current
Heirs: Once all borrower(s) pass away the heirs have up to 1 year to sell or refinance the home; everything left after paying money borrowed, interest and any financed closing costs, is left to the estate and any heirs.
Home Equity Conversion Mortgage: The most common type of reverse mortgage is the Home Equity Conversion Mortgage, otherwise known as a HECM mortgage. This is the only reverse mortgage program that’s federally insured and backed by the U. S. Department of Housing and Urban Development (HUD). This type of reverse mortgage is popular for a few reasons:
Ability to choose your own interest rate. You can select one that is fixed for your lifetime or one that changes every month.
Payment Options: The fixed rate option allows for you to receive a lump sum payment at closing The Adjustable Rate Options allow for you to receive a guaranteed monthly check, line of credit, or lump sum.
The loan can be used for any purpose. With a HECM, you don’t have to designate the loan to a specific use; you can apply the funds to anything you choose.
Protection: This is one of the most attractive features of a HECM. This plan protects you by guaranteeing continued loan advances even if your lender defaults, the home value drops below what is owed, or one of the borrowers pass away.
Sell or Stay?
The main reason people choose a reverse mortgage is to gain financial independence and maintain an adequate standard of living without leaving their current home. The best way to decide if a reverse mortgage is right for you is to compare it to the other option of selling your house. To do this, ask yourself these three questions:
How much cash can I get by selling my home after the 6% realtor commisions?
How much will it cost to buy or rent a new place?
Is it worth my moving now, or do I prefer to do something else with the money?
Perhaps you’ll confirm what you knew all along, where you now live is the best place to be.