Reverse Mortgage Loans - Reverse Home Mortgage
Reverse Mortgage Loans - Reverse Home Mortgage
A home equity conversion (reverse mortgage) is a special type of loan used to convert (change) the equity (value) in your home into money. The money from a reverse mortgage can help you pay for your health care needs, pay off debts, make home repairs, and supplement your monthly income. It may also help pay for long-term care services through a long-term care insurance policy, annuity, out-of-pocket, or single premium life/long-term care policy.
The amount of money you can get depends on your age at the time you apply for the loan, the equity (value) of your home, type of loan, and current interest rates.
How you get your payments is your choice. You can get your payments all at once (lump sum), fixed monthly payments, a line of credit, or combination of any of the ways just described. However, most people like to get their payments as a line of credit. This allows you to use your money at any time.
Sometimes, you will have to pay some costs to get a reverse mortgage. These costs can include an origination fee (a fee to prepare your loan paperwork and process your loan), appraisal fee, and other fees, like title work. Usually, these costs can be added into your loan.
The money you get from a reverse mortgage is tax-free. It doesn’t affect your Social Security or Medicare benefits. However, the money you get from a reverse mortgage counts toward your income when determining your eligibility for Medicaid or other state assistance programs. You may want to check this out before getting a reverse mortgage.
Reverse mortgages are different from first and second mortgages. Instead of you making monthly payments to a lender, the lender makes payments to you. You don’t have to make payments on the loan until you no longer live in your home permanently. However, you can make payments whenever you want. You will have to pay the loan back plus interest and other costs when you either sell your home, move out permanently, or when you die.
With reverse mortgages, you can’t lose your home because you “missed your mortgage payment.” This is because you don’t make any monthly payments. Remember, because you own your home, you must still pay for your property taxes, homeowners insurance, home repairs, and utilities (such as phone and electric). If you don’t pay for these, then you may have to repay the loan in full immediately.
When you sell your home, no longer live in your home permanently, or when you die, you or your estate will have to repay the money that you got from the reverse mortgage. You will also have to repay any interest and other fees. If you have any money (equity) left over, then that belongs to you or to your heirs (family or friends). Remember, reverse mortgages don’t affect any of your other assets (such as your personal checking or savings accounts).
The Home Equity Conversion Mortgage Program (HECM) is a program in which federally insured reverse mortgages are backed by the Federal Housing Administration (FHA, an agency of HUD) and insured by the federal government through the HECM Program. Since there is a chance of fraud, this program requires that you receive free reverse mortgage housing counseling from a HUD-approved reverse mortgage counseling agency before applying for a reverse mortgage. In addition, FHA insures HECM loans to protect lenders against loss if amounts withdrawn exceed equity when the property is sold.
Reverse mortgages that aren’t backed by the federal government may be more expensive but often have the flexibility of providing larger loan amounts.
In the past 10 years, public tax policies have made it easier for individuals with moderate incomes to save and invest a portion of their income for retirement. However, for most individuals who have already left the workforce, the single largest asset they have saved is the equity value of their home. For some individuals, the income received from Social Security and a pension is inadequate to meet their special needs. Conventional forms of converting to income home equity involve repayable loans secured as second mortgages or liens against ownership. Since 1989, the federal government has insured for adults age 62 and over a different type of mortgage that provides regular monthly without repayment or the threat of eviction, even if the owner outlives the declining equity.
Reverse Annuity Mortgages
If you choose to get a reverse mortgage, at the same time, you can buy a reverse annuity using your reverse mortgage money. This has the same requirements as a reverse mortgage. When you sell your home, no longer live in your home permanently, or when you die, you or your estate will have to repay the money back that you got from the reverse annuity mortgage. You will also have to repay any interest and other fees.
