Reverse Mortgages

Reverse Mortgage – Is a Reverse Mortgage Suitable for You?

If you are a US citizen older than 62 and you own a home, you can readily consider taking out a reverse mortgage. This type of loan allows you to make use of the equity that you have in your house for the purpose of covering additional and emergency expenses. There are various loan options in this category but the main one is the Home Equity Conversion Mortgage (HECM) available from the US Federal Housing Administration. Take a closer look at what this type of loan has to offer.

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What Is a Reverse Mortgage?

As the name of this type of loan suggests, it works in the opposite way to a traditional mortgage. Its main purpose is to help you cash out on your home’s equity. Basically, you use your home equity as collateral to borrow money. In most cases, the borrowed amount is available in the form of equal monthly payments or a revolving line of credit. The latter option is usually preferred since it gives you maximum flexibility.

At this point, you may ask what the difference from a traditional home equity loan is. In the case of a reverse mortgage, you are under no obligation to repay your debt in the form of monthly installments. The debt has to be paid only when changes to the property status and ownership occur or when the borrower passes away.

How Does a Reverse Mortgage Work?

There are a number of requirements which you need to meet in order to qualify for such loans and for HECM, in particular. Firstly, you need to be over 62. You must have complete ownership of the home or have outstanding mortgage debt which can be repaid with the use of the new loan. You must live in your home. Basically, it must be your primary residence. All single family homes quality for this type of loan.

You can choose how much money to borrow in line with your needs. The maximum amount that will be extended to you depends on several factors. These include the value of your property, your age or the age of the youngest borrower if there is more than one, the current interest rate and the initial mortgage insurance premium that you will pay. You can borrow more if your property is more valuable, if you are older and/or if the current interest rate is lower.

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As said earlier, you do not have to pay monthly installments unless you want to. You can always do this to reduce the amount of outstanding debt that you have. Mandatory repayment kicks in if the borrower no longer uses the respective home as their primary residence. This can happen when they sell the property, for instance. Debt payment will kick in if the borrower fails to meet the terms and conditions of the loan. If the borrower dies, the debt has to be repaid by their heirs.

If the sale of the property for repaying the debt does not yield a sufficient amount of money, then the insurance provided by the government will cover the remainder. This is an important benefit to have.

Reverse Mortgage Cost

The cost of the loan that you take out will depend primarily on the borrowed amount and on interest rate charged. Generally, given the greater flexibility of these loans they tend to be more expensive compared to the traditional home equity ones. They also tend to have fairly high upfront costs. Still, in recent years, the HCEM program has introduced a number of saving options which lower the cost considerably. It is best to check the current reverse mortgage rates to get a precise idea about the cost.

Reverse Mortgage Pros and Cons

Pros:

Cash to cover extra costs, emergency expenses and higher medical bills

Easy to get

Available counseling

Good protection for borrowers and for their heirs

Cons:

Can be expensive

High upfront fees

Risk of property loss for heirs

It is up to you to decide whether to take out a reverse mortgage. You can readily get more and individual reverse mortgage information from a financial counselor. They will be able to take into account your individual circumstances and needs to help you figure out whether and how much you will benefit from such a loan.

Christian

Christian

Christian Calvin mortgage Christian is a contributing writer for Mortgage.info. He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.

Contact: christian@mortgage.info
Christian

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