Retirement Income and Reverse Mortgages

Put your home equity to work for you.

If you are 62 or older you can increase your cash flow with a retirement income reverse mortgage. A reverse mortgage can give you financial freedom and provide you with income to use any way you wish.

Retirement Income Reverse Mortgage Options

There are three types of reverse mortgages available to borrowers. The three types available in the United States include:

  • Uninsured
  • Lender-insured
  • FHA-insured

Each of these mortgages have differences, and it is important that borrowers considering a reverse mortgage explore all of their options with a reverse mortgage counselor before they sign on the dotted line.

Retirement income from a reverse mortgage can help a borrower achieve financial freedom when they may not be receiving much income from their Social Security, retirement or investments. The borrower can choose how much to borrow based on what their needs are. The lender sets the maximum amount of the mortgage.

General Borrower Requirements

There are some basic requirements that must be met by borrowers before they qualify for a reverse mortgage. The following are the most common general requirements:

  • Must be age 62 or older
  • Must have ownership of their own home or multi-unit building
  • Must owe very little on an existing mortgage
  • Must reside in the home or a unit of the building for the duration of the reverse mortgage

Reverse Mortgage Options

The type of mortgage you choose will determine what your options are. The following details the three types of mortgages, their benefits, and possible drawbacks.

Uninsured Reverse Mortgage

The uninsured reverse mortgage does not require borrowers to pay an insurance premium on their mortgage. This can increase the amount of payout each month to the borrower. The interest rate is usually fixed, which can benefit a borrower especially when interest rates are low.

There are several drawbacks to obtaining this type of reverse mortgage. One of the drawbacks is that the borrower must have a verifiable source of income in order to apply for it. Another detractor is that this mortgage is set for a fixed period of time. When the time period is over, the borrower is required to start making payments on the balance.

Lender-insured Reverse Mortgage

A lender-insured reverse mortgage is a popular option for many borrowers. The interest rate is based on the borrowers credit rating, but a bad credit rating will not necessarily prohibit an individual from obtaining this type of mortgage. The total amount of the loan varies and it cannot exceed the total value of the home.

Borrowers should look for the lowest interest rate on this type of mortgage, as it will add quickly to the total balance. It is also important to consider the closing costs and insurance premiums, which also add to the total amount being borrowed.

A drawback for this reverse mortgage is that there may be little to leave to your heirs at the end of the mortgage. The lender will sell the home in order to satisfy the amount that was borrowed. If the home is sold for more than the amount owed, the heirs will receive the difference.

FHA-insured Reverse Mortgage

An FHA-insured reverse mortgage can provide retirement income for individuals who need more flexibility with their finances. This type of loan is more structured and it has an upper limit on the amount that can be borrowed. The total amount of the mortgage cannot exceed the current value on the home.

A benefit to having an insured reverse mortgage is that the insurance company will pay any shortfall between the sale amount of the home and the mortgage balance at the end of the mortgage. If the home sells for less than the amount owed, the lender will not seek payment from the heirs.

Know Your Options

Retirement income from reverse mortgages is a way to increase cash flow for older borrowers. The money can be used anyway that the borrower chooses. Borrowers can choose from several types of reverse mortgages; differences include interest rates, insurance premiums and closing costs. Anyone who is interested in this type of mortgage should speak with a reverse mortgage counselor to decide which mortgage would best suit his or her interests and long-term goals.

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Retirement Income and Reverse Mortgages