Reverse Mortgages…the More You Know
If you are 60 or older and want to pay off your mortgage, receive supplemental income, or need money for any purpose – you should consider a Reverse Mortgage. A Reverse Mortgage allows you to convert part of your equity in your home into tax free cash without having to sell or pay monthly mortgage payments.
How Do Reverse Mortgages Work?
When you have a traditional mortgage, you pay your lender every month to buy your home over time. With a Reverse Mortgage, you have a loan where the lender pays you. A Reverse Mortgage allows you to take part of your equity in your home and convert it into tax free cash in the form of; a lump sum, monthly income payments, a line of credit or a combination of all three. You are not required to make any monthly mortgage payments to your lender for as long as you live in your home as your primary residence. When you pass away, move or sell your home, you or your estate would repay the loan. On some occasions, that means your estate or heirs would sell the home to pay off the existing Reverse Mortgage. The heirs may also refinance the home into their own name to pay off the Reverse Mortgage.
There are basically two types of Reverse Mortgages: FHA Insured HECM Mortgages (the most common type), and Proprietary “Jumbo” Reverse Mortgages. As the name indicates, HECM Mortgages are insured by HUD and the proprietary Jumbo Reverse Mortgages are “private” lenders, who make Reverse Mortgage loans on higher value properties. These loans are not insured by FHA/HUD. No matter which type of Reverse Mortgage loan you get, you are borrowing against the equity in your property. You keep the title in your name and instead of making payments to your lender, the lender makes payments to you. The money is tax free and does not affect Social Security or Medicare.
Reverse Mortgages allow you and your spouse (if applicable) to live in your home without making monthly mortgage payments, until the last surviving borrower permanently vacates the property. You are still responsible for property taxes, homeowner’s insurance and HOA dues (if applicable) during the course of the mortgage.
Fees: The fees and cost of Reverse Mortgages are similar to other residential mortgages.
Interest Rates: Reverse Mortgages are available in either Fixed rate or Adjustable rates. As the name implies, “fixed”: rates do not change over the course of the loan term. “Adjustable” rates are tied to an “index” and can change over time. Because you are not required to make any monthly mortgage payments on the Reverse Mortgage, the monthly interest charge is added to your loan balance. Therefore, your loan balance will increase over time.
Interest Tax Deduction: Because you are not paying your interest payment monthly, your interest is not tax deductible until the interest is paid.
What About Your Spouse: If your spouse is on the Reverse Mortgage either as a “co-borrower” or “non borrowing spouse” (NBS), they are protected by the Reverse Mortgage and the surviving spouse can live in the home for the rest of their life as long as they fulfil the Reverse Mortgage requirements to pay property taxes, homeowners insurance, HOA Dues (if applicable) and keep the home maintained.
What About Your Heirs: Just like all residential mortgages, Reverse Mortgages allow you to leave your property to your heirs. The title is still in your name, so your heirs inherit your property the same way they would with a traditional mortgage.
Types of Reverse Mortgages
Home Equity Conversion Mortgage (HECMs) are federally insured Reverse Mortgages. They are insured by US Dept. of Housing and Urban Development.
Proprietary Reverse Mortgages are privately funded “Jumbo” loans offered by the companies that developed them and are generally used for higher value properties.
How Much Can You Qualify For:
Amount you qualify for is based on several factors:
- Your Age
- Type of Reverse You Choose
- Appraised Value of your residence
- Interest Rate Chosen
Generally, the older you are, the more money you qualify for.
HUD Requires that every borrower must complete a counseling session with a government approved counselor.
As with every financial transaction, education is very important. Consult with a Reverse Mortgage Expert before making any commitments.
Rainmaker Reverse Mortgage Services is a highly recommended expert in Reverse Mortgage Financing. Talk to the Rainmaker before making any decision.
Freddie Lambert ~ Direct: (949) 861-0911