Are you a senior or a child of a senior, who needs extra income for your parents living expenses, but don’t know how or where to come up with the income? A reverse mortgage allows seniors to receive income on the equity in their home, which can be used to help pay living expenses.
A reverse mortgage is a mortgage where the mortgage payments are reversed. Instead of the payee paying the mortgage company, the mortgage company makes payments to the payee. More information on reverse mortgages can be found at the Lending Expert Blog.
A reverse mortgage was initially designed to help retirees with limited income utilize the money they invested in their home to pay off their debts such as health care costs and other monthly payments. To qualify for a reverse mortgage, the borrower must be over 62 years of age, and allows the borrower to convert part of the equity in their home into cash.
The borrower is not required to pay back the money unless the home is sold, or they no longer reside in the home. During the course of the reverse mortgage payments, the borrower is no longer obligated to make the monthly mortgage payments on their home, but they are still responsible for paying home insurance and property taxes.
The amount of money you receive for a reverse mortgage depends on the age of the youngest spouse, the value of the home, and upfront costs and interest rates. The more mature you are; the more you are eligible to receive.
Funds are granted to you either as a line of credit, a lump sum, or as fixed monthly payments, for as long as the borrowers are a resident in the home. You also have the option of combining payment options. To eliminate out of pocket expenses, especially for lower income residents, fees can be paid out of loan proceeds, except appraisal and counseling fees.
There are two types of reverse mortgages, an HCEM and Proprietary Reverse Mortgage. The Home Equity Conversion Mortgage (HCEM) is a reverse mortgage created by the US Department of Housing and Urban Development. This loan is issued by a private lender, but insured by the FHA. The proprietary Reverse Mortgage is a non FHA insured loan and is not subject to the same regulations as HCEMs and is generally taken on higher valued homes of $750,000 or more.
With a reverse mortgage, the lender never owns the home, even after the last spouse permanently leaves the home. So, rest assure knowing ownership of the home always remains with borrower. However, the loan balance increases as you live in the home, which means you could end up paying more for the home than it originally cost.