A Reverse Mortgage, also called a Home Equity Conversion Mortgage (HECM), is an FHA-insured loan available to Homeowners aged 62 and over. These loans are designed to make the homeowner's equity available to them, allowing them to age in place. Reverse Mortgages can be a great option for homeowners with significant equity in their homes (40% or greater).
With a conventional mortgage the homeowner makes a monthly payment to the lender. After each payment the equity in the property increases, and after the mortgage has been paid in full, the lien on the property is released from the lender.
In a Reverse mortgage, the homeowner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
Basically, the more valuable the home, the older the borrower(s), and the lower the expected interest rate, the higher the potential loan amount.
- No income or credit score requirements
- Payment can be a lump-sum, monthly cash payout, line of credit held in reserve, or combination of all
- In many states can use proceeds for purchase of a new home
- The borrower is not obligated to repay the loan until they no longer occupy the home as their primary residence.
- The borrower retains title and control of the home
- The borrower will never owe more than the value of the property at the time it is sold
- Must be at least 62 years old
- Home must be the borrower's primary residence
- Any existing mortgage must have a low balance
Frequently Asked Questions:
Q: Can the lender take my home away if I outlive the loan?
As long as property taxes and homeowners insurance are kept current and the home is properly maintained, there is no obligation to repay the loan until all borrowers on title no longer occupy the residence.
Q: How much money can I borrow against my home?
The loan amount will depend on your age, expected interest rates, and the home's appraised value or FHA's mortgage limits (currently $625,000), whichever is less.
Q: Will I still have an estate to leave to my heirs?
When the home is sold, you or your estate will repay the cash received from the reverse mortgage plus interest and pre-determined fees. Any remaining equity belongs to you or to your heirs.
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