Reverse Mortgage Opportunities

Tell Me About Reverse Mortgages

A reverse mortgage is also called a home equity conversion mortgage. A reverse mortgage allows individuals to convert their home's value into cash. The benefits of a reverse mortgage are extensive:

• It will allow you to remain in your home.
• The money can help you maintain financial independence.
• It provides a steady source of income that can be used for anything.
• It provides a tax-free income.

Those who obtain a reverse mortgage can rest assured that they won't lose their home. The lender receives their money back when the home is sold. At this time, the lender has to accept the selling price as settlement on this type of mortgage. The lender will not be able to go after your estate to receive any additional money, even if the home sells for less than the amount of the reverse mortgage.

Types of Reverse Mortgages

There are three types of reverse mortgage opportunities available to homeowners over the age of 62:

• Lender-insured
• FHA-insured
• Uninsured

A lender-insured mortgage will provide you with income and a line of credit. Interest on this type of loan varies; either a fixed or adjustable rate or the insurance premium may also be fixed or variable. If your interest rate is high, it will add quickly to the balance of your reverse mortgage, which could mean you would leave less to your heirs when your home is sold.

An FHA-insured mortgage will also provide borrowers with a steady income and a line of credit. The FHA-insured mortgage will pay a lender any shortfall should a home sell for less than the amount borrowed. Each borrower pays an insurance premium to provide for this potential difference. There is no repayment on the loan as long as the borrower maintains the property as their primary residence. Survivors will also receive any difference between the loan amount and the value of the home when it is sold.

Uninsured reverse mortgage opportunities are very different from those that are insured. The monthly payments are for a fixed period of time. Once this period is over, payments will be required on the balance. The interest rate for an uninsured mortgage is usually fixed and there is no premium for insurance.

Borrower Requirements

There are some basic requirements that a reverse mortgage borrower needs to meet. These requirements include property and financial requirements.

Property Requirements

Individuals who borrow using a reverse mortgage are subject to property requirements. These requirements include:

• Single family home, or a multiple unit dwelling, with the borrower living in one of the units
• HUD approved condos
• Manufactured housing on leased land
• Lender approved property standards and flood requirements

Financial Requirements

Borrowers are expected to meet the lender's financial requirements. These usually include the following:

• Closing costs, which may be financed in the mortgage
• Insurance premiums, which may also may be financed in the mortgage
• There are usually no credit or income qualifications for a reverse mortgage

Loan Counseling

Before you make the decision to obtain a reverse mortgage, you should talk with a certified HUD approved reverse mortgage counselor. They can help you evaluate your needs and advise you on the potential costs of this type of mortgage. A certified mortgage counselor can also advise you of the potential disadvantages of obtaining a reverse mortgage.

Conclusion

Reverse mortgages are a one way to help older adults maintain their financial independence by using equity that they have earned by paying for their own home. Borrowers should be aware, however, that there are costs that may be incurred at the time of the loan, including interest and insurance premiums. The reverse mortgage may be an expensive choice. Borrowers should speak with a certified reverse mortgage counselor before they make any decisions regarding mortgaging their home.