what is a reverse mortgage

What Is a Reverse Mortgage?

If you looking for the best post-retirement financial planning, you might also be wondering about what is a reverse mortgage. To put it in simple terms, a reverse mortgage is a loan. However, unlike regular loans, this allows homeowners to convert a portion of their home equity into cash, given that the homeowners are 62 years old or more. This type of loan can be very appealing for people who want to supplement their retirement funds. You can even use the proceeds from a reverse mortgage to pay of credit card dues or an existing mortgage.

How does a reverse mortgage work?

Quite like a regular mortgage solution, a reverse mortgage allows homeowners to borrow money using their property as security for the loan. It is a very sensible solution for retired individuals who need extra financial help. Reverse mortgages are more like a financial tool in this case that allows retired homeowners to receive a lump sum of money to manage their expenditure. So, how is it different from a regular mortgage?

Well, as the name suggests, reverse mortgage works in reverse. That means, you can avail payments from a lender if you have enough equity on your home. The most interesting part is that you need not worry about repaying this loan. The money only needs to be paid after you pass away or if you wish to sell your house!

Everything you should know about this Special Type of Reverse Mortgage Loan

A great way to add stability to your retirement years, reverse mortgages are often surrounded in a cloud of controversy. Much of the latter comes from misinformation or lack of enough information regarding the reverse mortgage solution. If you’re wondering what a reverse mortgage basics is or how does it qualify to be a special type of home loan, you have come to the right platform.

Using our experience in mortgage loans, particularly reverse mortgages as base, we hope to address all the major questions related to what a reverse mortgage is and how you can benefit from it. Hopefully, after you finish reading this blog, you would have all your doubts cleared. So, let’s delve into the specifics right away.

Is a reverse mortgage ever a good idea?

Once you understand what a reverse mortgage is, it would become clear how you can benefit from this reverse mortgage loan solution. In more ways than one, a reverse mortgage company
can prove to be very helpful for retirement planning. Let’s take a look at the reverse mortgage pros and cons to get a clearer picture.

How does a reverse mortgage work in your favor: The Pros

  1. Regular income after retirement: If you are the owner of your primary place of residence, you can continue to avail payments from the lender. You can even choose if you want to borrow a lump sum or a monthly payment.
  2. No tax burdens: The payment you receive from a reverse mortgage do not fall under the taxable income category. So, you need not worry about any deductions or additional charges.
  3. A non-recourse loan: FHA mortgage insurance covers any differences in home value. So, you cannot be forced to pay anything extra in case the value of your home goes down. In other words, even if your home sells for less than you owe the lender, you don’t have to worry about it.
  4. No repayments required: This is the biggest advantage that comes with a reverse mortgage. As stated earlier, you don’t have to worry about paying back the lender unless you plan to sell the house. The amount needs to be repaid only after you pass away.

How does a reverse mortgage work without benefitting you: The Cons

Also known as an FHA loan or an HECM loan, reverse mortgage has way more pros than cons. Not only does it help maintain a steady income after your retirement but also, ensures that you can take care of your sudden expenses related to healthcare, home improvements and so on. If you are wondering how does a reverse mortgage work without having any cons, you should understand that the only downside could be the service fees and initial costs that are required for you to be eligible for an HECM plan.

Another fact that could be considered a con here is that if you move into long-term care, to a nursing home or other facility, you will have to repay the loan amount. That is because you will no longer be using the home as your primary residence.

Who is eligible for a reverse mortgage?

Anyone who is retired and over the age of 62 years can qualify for a reverse mortgage. However, it is important to opt for HECM and FHA-insured plans rather than non-HECM mortgage options. The latter could turn out to be detrimental to your equity and retirement planning.

Here are the key factors that you need to be eligible:

  • You should live in the same house as your primary residence that you use for the mortgage.
  • Your property must meet the FHA requirements.
  • You should not be delinquent on federal debt.
  • You should be able to keep paying insurance, taxes and other costs.

Remember that you can continue to receive payments throughout your life. Alternatively, you can even set up a term for which you would need the payments. In that case, the payments would stop after the term period is over.