What is a Reverse Mortgage?
Reverse mortgages convert home equity into cash. After years of paying off a conventional mortgage, a reverse mortgage gives a homeowner the ability to borrow the home equity that has been built up. A reverse mortgage loan is not repaid until the owner moves, sells the house, or passes away
Who can get a Reverse Mortgage?
To qualify, the borrower must be older than age 62 and own their home. The house must be paid for or the remaining mortgage balance is small enough to be paid off with reverse mortgage proceeds. The homeowner can own other properties, but the reverse mortgage must be on the primary residence, and the homeowner must reside there at least one month each year. However, unlike other loans, a reverse mortgage does not look at your debt ratio or income sources since the homeowner does not repay the loan as long as he or she occupies the home. Before applying for a reverse mortgage, the homeowner must first meet with a HUD-approved, reverse mortgage counselor. The counselor informs the homeowner of all available options and provides assistance in determining the best option for the individual.
How does a Reverse Mortgage work?
A reverse mortgage pays out home equity in the form of cash to the homeowner. The homeowner can receive the funds in a lump sum, fixed monthly payments, a line of credit, or any combination of these options. The funds paid out to the homeowner can be used for anything, including living expenses, medical expenses, home repairs, education, travel, insurance and even preventing foreclosure.
The reverse mortgage is not repaid until the homeowner moves, sells the house, or passes away. If the owner dies, the bank gives the heirs approximately six months, sometimes longer, to sell the home. Proceeds from the sale are used to repay the loan. Any remaining proceeds go to the heirs. If other funds are available, the reverse mortgage loan can be repaid without selling the house.
What about Reverse Mortgage interest rates?
Reverse mortgages offer only variable interest rates.
What amount of money can be pulled out using a Reverse Mortgage?
The older the homeowner and the more valuable the house, the larger the reverse mortgage can be. Current interest rates and the home’s location also factor in. If the house is in need of substantial repairs or there is still a conventional mortgage balance, the lender might require the homeowner to use funds from the reverse mortgage to pay for these items first.
How much does a Reverse Mortgage cost?
Reverse mortgages have closing costs similar to other types of mortgages. This includes an origination fee, appraisal fee, credit report fee, flood certification, escrow, document preparation, recording fee, courier fee, and title insurance. Borrowers are also charged a mortgage insurance premium (MIP) and service set-aside fees. MIP protects both the lender and the borrower, if the amount owed to the lender exceeds the value of the home when it comes time to repay the loan. MIP will pay the difference. Service set-aside fees are deducted from the available loan limit to cover the projected monthly loan servicing fees. The monthly service fee is generally $30 to $35. The amount of the service set-aside fees depends on the life expectancy of the homeowner.
Does a Reverse Mortgage affect Social Security, Medicare, or other assets?
Funds received from a reverse mortgage are tax-free and do not affect Social Security, Medicare, or other assets. However, it may affect eligibility requirements for government or state assisted programs.
Henssler Financial recommends evaluating all options before you choose a reverse mortgage. Other options may include a home equity line of credit or refinancing.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
