A reverse mortgage allows senior homeowners (must be 62+) to convert part of the equity in their homes into tax free income and they don't have to sell the house. Unlike a regular mortgage where you make monthly payments to a lender, a reserve mortgage is completely opposite and the lender makes payments to you each month. Sound good, well it can be an excellent way for seniors to stay in their residences long into retirement. Townhouses, qualified condos, manufactured homes built after 1976, and single-family homes are eligible for a reverse mortgage. The 4 types of reverse mortgages are the Home Equity Conversion Mortgage (HECM), Fannie Mae Home Keeper, Cash Account "Jumbo Loan" Program, and Canadian Home Income Plan. You can use the funds to take a vacation, pay off other loans/debts, pay for health care expenses, property taxes, etc. You can even get a reverse mortgage if you still owe on an existing mortgage. Payments options are available in 3 ways - a lump sum, fixed monthly payments, or as a line of credit (60% choose this option). A reverse mortgage will not affect your Social Security or Medicare benefits in any way, shape or form. The ONE stipulation is that if you go with a lump sum, then any amount retained after the month would count as an asset and could impact your Medicaid eligibility.
You must first meet with a counselor before applying for a reverse mortgage so that the counselor can educate you about reverse mortgages, offer alternative options based on your financial situation, and answer any questions you may have. You can get a list of approved counseling agencies nationwide (posted online by the US Department of Housing and Urban Development) HERE. A common question is "how do I payback the loan"? There are no monthly payments due on a reverse mortgage. The loan is repaid when you no longer occupy your home as a principal residence, when you (the last remaining spouse for couples) pass away, sell the home, or permanently move out. The amount owed can never exceed the value of the house. If the home is sold and the amount exceeds the amount owed on the reverse mortgage, the extra money goes to you or your estate. The most popular type of reverse mortgage is the Home Equity Conversion Mortgage (HECM) while the Financial Freedom Cash Account helps benefit homeowners living in higher priced homes. Costs associated with a reverse mortgage are similar to those in a traditional mortgage like origination fee ($4000-$7000), up-front mortgage insurance premium (2% of home value up front, .5%/year thereafter), appraisal fee ($300-$400), and standard closing costs ($1800-$2500).
Steps to Getting a Reverse Mortgage:
It takea a little research and the following steps to get a reverse mortgage:
Awareness - Learn about reverse mortgage programs
Action - Contact a reverse mortgage lender or the National Reverse Mortgage Lenders Assoc.
Counseling - Mandatory regardless of which reverse mortgage product you go with
Application/Disclosure - Homeowner chooses payment options, lender discloses the estimated cost of the loan
Processing - Lender orders appraisal, title work, lien payoffs, etc.
Underwriting - Once all pertinent information and data has been gathered, lender finalizes loan parameters with homeowner (i.e., determining payment option, frequency of loan interest rate adjustments) and submits loan package to underwriting department for final approval
Closing - Once loan package is approved, closing (signing) of the loan take places
Disbursement - Homeowner has 3 business days after signing papers in which to cancel the loan. Upon expiration of this period, the loan funds are disbursed
Repayment - No monthly payments are necessary during the life of the loan, the loan gets repaid when homeowner ceases to occupy the home as a main residence
Reverse Mortgage Calculator:
There are some basic calculations that need to be done in order to ensure that a reverse mortgage is in your best interest. The best site to determine this is at nrmla.edthosting.com/. This mortgage calculator will estimate benefits from 2 reverse mortgage programs - the federal insured "Home Equity Conversion Mortgage" and the proprietary Home Keeper Mortgage from Fannie Mae. You and the co-borrower must be at least 62 in order to obtain a reverse mortgage. You will need to enter in the following information: mortgage and liens on your home (if any), monthly payments on your mortgage (if any), other upfront cash you desire, estimate any repairs, your desired credit line, zip code, how much is your home worth, when you were born, when spouse was born. Any reverse mortgage offered by a bank will print out results from their own reverse mortgage calculator and walk you through the numbers, so don't be threatened or overwhelmed by what you see.
AARP Reverse Mortgage:
Since reverse mortgages are set aside for seniors, we understand that having a group like the AARP's advice is important in trusting a decision so big. The AARP has a whole section of their dedicatd to reverse mortgages - how they differ, are you eligible, a reverse mortgage calculator, and the fundamentals of what goes into getting a reverse mortgage. All the reverse mortgage information can be found at Www.aarp.org/money/revmort/.
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