About Reverse Mortgages is a free consumer resource for seniors who are interested in learning about the Home Equity Conversion Mortgage ( aka reverse mortgage ) this is a government insured loan has helped over 600,000 seniors qualify to eliminate their mortgage payments (and to release equity) all without the need for a monthly mortgage payment in retirement.
What is a reverse mortgage loan and how does it work in your retirement
The reverse mortgage program allows seniors to borrow a portion of the homes equity without having to sell the property – move – have a mortgage payment – for those who are interested in improving their retirement’s cash flow the HECM loan can allow you to borrow a percentage of the home’s value without a mortgage payment.
How a reverse mortgage is different from a regular forward mortgage
1.) there are no credit checks required to qualify – also no income is required (this is really important for seniors who cannot qualify for a traditional mortgage but want to release equity without selling their home)
2.) NO monthly payments are due – this is a strange concept to understand at first but its quite simple actually – in your retirement cash flow is limited to your fixed income/investment therefore the reverse mortgage will allow you to get a
Do I qualify for a reverse mortgage
- must be 62 years of age (or at least 60 days from it)
- own the home (if mortgage is existing sufficient equity must be available)
- have sufficient equity in the home ( take the value of the home minus any mortgage balance – this is the available equity – more equity is better)
- be your primary residence (live in the home for 183 days out of the year)
- never have defaulted on government backed debt
How much money will I be able to receive from my home? use our free reverse mortgage calculator
The amount you may borrower will depend on:
- Age of the youngest borrower
- Current interest rate in the market
- Lesser of appraised value or the HECM FHA mortgage limit of $625,500 or the sales price; and
- Depending on the program you choose Standard or HECM Saver (with a saver you cannot borrow as much compared to the Standard)
What are the Pros and Cons to the reverse mortgage program?
lets start with the pros about the reverse mortgage loan
- interest rates in 2012 are still at all time lows – rates for the HECM program are at the lowest point in the history of the program (both fixed rates and adjustable rates have substantially been reduced due to the market conditions mainly a recession).
- there are never any monthly payments due – that is the main feature of the HECM reverse mortgage program which confuses seniors – as most are used to taking out equity but having an obligatory mortgage payment where in the case of the reverse there are never any payments due ( the lender will only get paid when both borrowers pass – that is when the loan becomes due and payable – if you sell the home or refinance the bank will also receive payment at that time).
- use the income or money you release from your home for any purpose you wish – there are never any restrictions on how you spend your equity.
- decide how you want to enjoy your income/equity – so you can select from receive 4 different proceeds options including monthly income which lasts for a lifetime – credit line which has a growth feature so your money grows with inflation – lump sum which means you can borrow the max and get it all upfront – and or a combination of the above.
- never pay any taxes on any funds you need to borrow – there are no income taxes which need to be paid if you take out a reverse loan – this is helpful as this is your money to begin with and the fact that the irs is not taking a percentage helps you by keeping more to spend in your retirement.
- no risk of foreclosure as long as you pay the property taxes and insurance – some seniors believe that there is a mortgage payment due but this not true – there are no mortgage payments which are due with the reverse mortgage – only way seniors can be foreclosed on is if they forget to pay for many months the homeowners insurance and taxes on the property (if you are in pre-foreclosure now the reverse loan can save your home if there is sufficient equity available).
- you can leave your heirs your home and any equity which is available – this is a huge concern among those who wish to leave behind a legacy the reverse program is not a way for banks to scam you and take your home (myth) instead any equity which has built up in the home will be available for your kids to receive (your estate can sell the home and keep the profits or take a forward refinance mortgage in order to then pay off this balance – they have 12 months from the time both borrowers pass away).
- there are no pre-payment fees in case you wish to sell your home – refinance – pretty much this is not a permanent decision that you can never turn back on – if for any reason there are new plans for you.
now what are the cons / disadvantages / negatives to the reverse mortgage program
- you have to be 62 to qualify or at least 60 days from your 62nd birthday – while this may not be a con for everyone there are added risks for a couple where one is not 62 to get a reverse mortgage – and it really just boils down to if anything happens while the non 62 year is not yet on the reverse mortgage the loan may become due and payable in 12 months from the time the borrower passes (this is a scare position to be in when your home is the only asset and now you have just lost your partner).
- the property taxes and property insurance continue – again this will be the case no matter what but it is something to keep in mind and to budget for. Some seniors are not told this and fall behind – falling behind on your taxes/insurance is not savy as fees will be involved and it could lead to you loosing your home – so this is a negative in our book but one that no one can avoid (even if your home is paid off you must pay these fees).
- there are closing costs – the reverse mortgage is a mortgage program – so just like a traditional forward refinance there are closing costs involved – there was a time when the reverse mortgage loan was a very expensive option – but now with the HECM Saver and with interest at all time’s low this is not longer the case. The HUD department which monitors these loans had introduced lower borrowing options including a saver program which dramatically reduces the upfront mortgage insurance from 2% to only .1%. – seniors need to understand that fees vary dramatically from different lenders hence we are a free comparison service which compares lenders within our network.
- there will be less equity available for your heirs/kids assuming that the home does not increase at a value which is higher than the interest rate charged by the lenders – in most cases we like to estimate that there is roughly break even in a 20 year period so that if you borrow now half of your equity you will still have the other half in 20 years but there are many factors involved ( bottom line is that by borrowing your equity now there will be less in the future – there could be more equity in the future if home prices continue to increase above the rate you borrowed at for the HECM program.
Reverse Mortgage FAQ | Reverse Mortgage Frequently Asked Questions
- the reverse mortgage is a loan – this is not free government money – there are fees involved with this retirement option so please review all of your options.
- there are never obligatory monthly payments due – but you are able to pay down the interest which builds on the back-end of the loan if you so desire (there are never prepayment penalties fees involved).
- interest rates matter – right now rates are low so this is an advantage to you – savings on interest is extremely smart – if your current mortgage rate is higher than the HECM reverse that alone can be substantial.
- closing costs and fees vary drastically this is why we shop around to find you the best reverse mortgage loan for your specific scenario.
- you can qualify if you are over the age of 62 – own your home outright (or even if there is a mortgage on the home) – those who are not 62 need a co-borrower who is 62 to be on the loan – be careful and review the in’s and out’s of what happens when one borrower is not 62 (we can assist you in weighting the pros and cons of this decision).
Top Tips for Seniors Who Want the Best HECM Reverse Loans
- learn as much as you can – we are here if you want to have any questions answered – it is really important that you are comfortable understanding the entire program and most specifically how it fits into your retirement plans.
- receive a comparison for all 4 HECM options – while you may only be interested in a fixed rate option we recommend you consider all options to really get how the program works (both short term and for long term)
- lets About Reverse Mortgage compare up to 4 nationwide lenders on your behalf – in order to save the most money in closing costs and in fees (not to mention in interest rates charges) we do not charge the seniors for this service and we believe that the best way to shop for a HECM mortgage is to receive multiple reverse mortgage quotes.
written by: Paul Galante