How Does a Reverse Mortgage Work?
The FHA’s reverse mortgage program, called The Home Equity Conversion Mortgage (HECM) is a program that allows qualified seniors to get a loan against some of the equity in their home. Despite what lender is used, HECMs have the same interest-rates, although the closing costs and servicing fees will be different with each lender. Reverse Mortgage loans conform to the usual HUD standards and they are considered to be totally safe.
Reverse mortgages are a special type of loan that is designed for retired senior citizens of at least 62 years of age whose mortgage is almost paid off or paid in full. In the case that the home is owned jointly, both owners must be a minimum of 62 years old. Reverse mortgages account for a small percentage of the mortgage market, however they are on the increase due to some enticing advantages: Reverse mortgages let the elderly who only have a small savings and a tight limited income tap into the equity in their homes for cash, without having to make loan payments as long as they stay in the house.
Independent living was a common desire for the majority of older Americans according to a survey by the AARP. The reverse mortgage allows the elderly to keep that wish and assist them in living on their own. Instead of like a regular mortgage, to obtain a reverse mortgage, there are no requirements to provide a statement of income. There also is no credit history pulled and no required monthly payments for the loan.
Homeowners can use this type of loan for any reason, or a variety of reasons. Increasing costs for health care, utilities, and other daily expenses are causing a struggle for seniors who are living on a fixed income. Seniors can choose how they want to receive the money. They may choose to receive payments in a lump sum, on a regular monthly basis for a preset term, or they may choose to have it available as a line of credit. The homeowner also is able to reconfigured the loan during the course of the loan.
Many elderly people have benefited from having a reverse mortgage and improved the quality of their retirement years. A lot of people who would be able to qualify are simply not familiar with the benefits. Even though the mortgage can be paid back, usually the bank ends up owning the house when the owners pass away.
For all of the luring appeals of getting a reverse mortgage homeowners who are considering one need to be very aware that these agreements significantly reduce or eliminate any inheritance that would have otherwise gone to their beneficiary.