If you’re 62 or older and need financial assistance to supplement your income, or pay for healthcare, a reverse mortgage might be the right solution. It allows you to convert part of your home’s equity into cash without having to sell your home or pay additional monthly bills. However, it can be not very easy if you can’t understand the basics. Hence it is crucial to comprehend- A. What is a reverse mortgage? and B. How can it benefit you? Read on to learn about the critical reverse mortgage facts, how the whole thing works and if you are eligible.
- There Are Different Types of Reverse Mortgages
Learning about this financial solution’s primary types should be a priority among the many reverse mortgage facts you discover.
- Single-Purpose RM
This type is usually offered by local, state, and non-profit agencies. It is essential to utilize the proceeds for a state-specific purpose.
- Home Equity Conversion Mortgage (HECM)
HECM is a federally insured option that requires a pre-approval counseling session.
- Proprietary RM
Available to those who have high value homes, this type of RM is not insured by the government.
The various ways of receiving the payout is another among the top facts about reverse mortgage loans.
- Lump-Sum Plan
This plan offers a first-year maximum draw of 60% of the principal limit, available as a fixed-rate loan and an adjustable-rate loan. An additional 10% of the limit is made available if maximum obligations exceed the 60% limit.
- Partial Lump Sum
This plan lets you take the lump sum available to you at closing. You can then access the remaining balance via another payment plan.
You get to choose to receive equal monthly payments over a finite period.
In this plan, the borrower receives equal monthly payments for life.
- Line of Credit
This plan is the most popular option as it lets you draw upon your credit line as you require, up to your principal limit. Your lender does not require any minimum or maximum amount.
The primary homeowner must be 62 years old or more. But, if a spouse is under 62, you may still be able to get a reverse mortgage if you meet other eligibility criteria.
You are required to:
- Use the property as your primary residence.
- Pay off any existing mortgage you have using the proceeds from your reverse mortgage.
- Maintain your property in good condition.
- Engage in a consumer information session led by a HUD-approved counselor.
- Remain current on property taxes, insurance and other mandatory legal obligations.
Reverse mortgages are not like regular mortgages in which insurance and taxes are paid out of an escrow account. Hence, you would have to pay those expenses. You also need to be current on any homeowner’s association fees.
This is among the most important and advantageous facts about reverse mortgage loans. There are limited income and credit score mandates. But you will need to demonstrate a capacity to continue paying taxes and insurance on the home.
As part of the loan process, every potential borrower needs to meet with an independent, FHA-approved counselor. This is necessary to objectively ensure that they understand all the reverse mortgage facts, processes and individual terms of the loan. Also:
- With an HECM, you’ll never owe more than the home is worth when the loan is repaid.
- There are limitations on the amount of available funds a borrower can take at closing. This is to help your home equity last longer.
Well, legally, you have three calendar days to change your mind and cancel the loan. However, in most cases, the right of rescission will not be applicable to HECM for purchase transactions.
Remember to check the same when shortlisting a lender.
While the mortgage insurance premium could be the same among lenders, other costs can vary. It could include:
- Loan costs
- Origination fee
- Servicing fees
- Interest rate
- Closing costs
The lender often sets these fees and costs, although origination fees for HECM reverse mortgages currently are dictated by law.
The said amount depends upon a number of factors. Examples include:
- Current market value of your home
- The type of RM you choose
- Your age
- The current interest rates
- Associated costs
- Your financial assessment
You shouldn’t forget that a reverse mortgage is a good option for some people but might not be ideal for all. The above reverse mortgage facts can help you get a good idea about the solution. However, consulting an expert is always a better idea before you sign up for any programs.