What Is A Reverse Mortgage

Posted by MichealH Alexander on December 4th, 2020

You may have heard about a lending option called a reverse mortgage loan for homeowners.   If you are not familiar with it, a reverse mortgage is a loan for people at least 62 years old that converts a portion of their home equity into cash. The proceeds from a reverse mortgage can be used to pay for unexpected expenses, such as nursing home costs or long-term care.  It could also provide you with additional cash flow for all the expenses you have. As long as all loan terms are met, the loan does not require repayment until the last surviving borrower permanently moves out of the home, or until the last person on title passes away.  A reverse mortgage is a non-recourse loan that you do not have to pay monthly mortgage payments on, except for taxes and insurance and maintain the home. Reverse Mortgage Purchase Calculator

Most, but not all, reverse mortgages today are federally insured through the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) Program. This blog talks about HECM loans only 

Potential Advantages:

Generally, it will not affect Social Security & Medicare

You still can sell your home at any time, because the deed stays in your name

You’ll never owe more than what the house is worth

Access a growing line of credit (applies to unused funds)

Bridge the Medicare age gap from age 62 to 65

Purchase a retirement home, investment property, or right-size home to increase monthly cash flow and free up funds for investments.  (Not available in all areas)

Eligibility:

The property must be a single-family home, 2- to a 4-unit dwelling or FHA-approved condo

Must meet minimal credit and property requirements

Must receive reverse mortgage counseling from a HUD-approved counseling agency

Must not be delinquent on any federal debt

Must be a homeowner and either own home outright or have significant equity; must live in the house as the primary residence (live there 6+ months per year)

One borrower must be 62 or better except in Texas, where both spouses need to be at least 62.

Maximum allowed HECM FHA insured home value is 5,600 in 2020

What a Reverse Mortgage Is:

A Loan that Converts Equity to Cash for Many Different Uses:

A reverse mortgage can enhance your cash flow and/ or pay off (refinances) your current mortgage when mortgage payments are no longer as easy to make, the primary reason to use a reverse mortgage should be proactive, not reactive to a cash flow problem. When things are good, it is a great time to get a life preserver in case the economic waters get rough later in life.

Use for Lengthening or Increasing Retirement Cash Flow:

Create memories that you will be glad to have at the sunset of life. It is sad when folks sit at home on top of thousands of dollars in equity and miss vacations, grandchildren’s college graduations, or even a dinner out because the budget is too tight. No well-meaning child would ever ask you to pinch pennies so they could have a more substantial home equity inheritance when you pass away. They would rather have you enjoy life with them. Just ask them! Fairway Mortgage Services

Opportunities that Need Cash NOW:

In any rough economic times, there are many things that you can take advantage of if you have cash. You can purchase a vacation home in Arizona or a condo in Florida when you see below market prices! You could help a grandchild save their home from foreclosure or help them with college as costs soar over ,000 per year at public universities. Think about it – if you had an extra 0,000 in your hand today, whom could you give it to, or what else could you do with it? With your wisdom and experience, we know you can think of lots of options.

Legacy for Charity or the Next Generation:

If you work with a professional financial advisor in the life insurance industry, you may find there are many products designed for those with excess cash, including some that may accomplish more than a paid-off house could by itself. Talk to your financial advisor about products that may be available to you and your specific situation.