Title:
How a Reverse
Mortgage Can Benefit Homeowners 62 or Older
Word Count:
858
Summary:
The facts
concerning reverse mortgages. What you
need to know to make an informed decision about your finances and your home.
Keywords:
reverse mortgage,
california mortgage
Article Body:
Reverse mortgages
give eligible homeowners the ability to access the money they have stored up as
equity in their homes. They are designed
to build seniors' personal and financial independence by providing funds
without the requirement of a monthly payment for as long as they live in the
home.
Homeowners age 62 or older may benefit greatly by discussing the possibilities
and options a reverse mortgage can afford them with a lender or counselor. These types of loans offer a way to borrow
against the equity in your home to create a stable, continuous and tax free
source of usable income or a substantial source of supplemental income, all
without having to change your current living conditions.
The best part of this type of loan is that you aren’t required to repay any
part of the loan as long as you live in your house and don't breach any of the
terms and conditions of the reverse mortgage.
However it is important that you are diligent in researching this unique
loan product as it may not be right for every situation. This is why we encourage any potential
borrower interested in a reverse mortgage to investigate their options first
with a HUD certified counselor or lender.
Other great sources of information include family and friends who have
experience dealing with reverse mortgages before, nonprofit organizations
offering help to seniors’, the AARP, American Society on Aging, and authority
sites on the internet that provide helpful articles and resources concerning
the reverse mortgage industry.
While simple to understand in theory, it is important to know how reverse
mortgages work. The reverse mortgage
loan product got its name due to the fact that instead of making mortgage
payments, the lender actually pays the borrower creating a kind of inverse
relationship compared to the traditional mortgage product. The source of funds for the money received is
the equity stored in your home. The
unique feature of this loan is that unlike conventional mortgages where the
loan balance becomes smaller each moth you make a payment, the loan balance of
a reverse mortgage grows larger over time.
The principal on the loan increases with each payment received, this includes
interest and other charges accrued each month on the total funds advanced to
you. You retain ownership of your home
in all reverse mortgages, and many do not require repayment for as long as you
occupy your home, pay your property taxes and hazard insurance charges, and
continue to maintain the property.
When you leave your home permanently your loan balance becomes due. It is also important to note that your legal
obligation to repay the loan cannot be more than the market value of your house
at the time you leave the property. This
means that your lender can never require repayment of the loan from your heirs
or from any asset other than the property itself.
Today the 2 major reverse mortgage loan types provided by the Fannie Mae
(Federal National Mortgage Association) are the HECM and Home Keeper. These
loans assure the borrower that he or she will never owe more than the loan
balance or the value of the property, whichever is less, and no assets other
than the home must be used to repay the debt.
Also unlike conventional mortgages these loan types have neither a fixed
maturity date nor a fixed mortgage amount. Many borrowers familiar with the
home equity loan are often times skeptical about reverse mortgages and simply
see it as a different type of home equity loan and sometimes even think it’s a
scam.
For this reason it is important to understand the difference between home
equity loans and reverse mortgages. With
a HELOC (Home Equity Line of Credit) you must make regular monthly payments to
the lender in order to repay the loan, in fact, your repayments begin as soon
as your loan is made. If you fail to make the monthly payments on a traditional
home equity loan, a mortgage lender can foreclose on your home, putting you in
a position where you either have to sell your home to repay the loan or lose it
to the lender.
Another notable difference is the fact that some home equity loans also require
you to re-qualify for the loan each year, and if you fail to re-qualify, the
lender may require you to pay the loan in full immediately. In addition, in order to qualify for a
traditional home equity loan, you must have sufficient funds and debt-to-income
ratio in order to be approved on the loan.
Reverse mortgages however, such as the HECM and the Home Keeper Mortgage, do
not require monthly repayments, saving you from the need to qualify through the
traditional and often times difficult loan process. In fact, repayment of these loans is not
required as long as your property remains your primary residence and you stay
current in paying your property taxes and hazard insurance charges. Another stipulation that makes the reverse
mortgage so special is the fact that your income does not become a factor in
qualifying for these loans, nor are you required to re-qualify each year.