subject: Finding out about reverse mortgage [print this page] Finding out about reverse mortgage Finding out about reverse mortgage
If you are a home owner looking for money to pay of your current mortgage, finance a home improvement, pay health care expenses, or supplement your retirement, then you may be interested in a reverse mortgage. A reverse mortgage allows you to take part of your home equity and convert it into cash to use immediately without have to actually sell your house.
In regular mortgages you send the lender monthly payments. In a reverse mortgage, the lender sends you money, and in most cases you do not have to pay it back as long as you are still living in your home. You repay the loan when you sell the home, when the home is not your primary residence any longer, or when you die. Many reverse mortgages do not have income restrictions, and the proceeds are mostly tax-free.
The three types of reverse mortgages are:
Single purpose reverse mortgages - offered by nonprofit organizations as well as various local and state government agencies.
Federally insured reverse mortgages - better known as HECMs (Home Equity Conversion Mortgages). Backed by HUD, the US Department of Housing and Urban Development.
Proprietary reverse mortgages - private loans developed and backed by companies.
The least expensive option for you would be a single-purpose reverse mortgage. The lender has to agree with your use of the loan, whether if be to pay for property taxes, home repair, renovations, etc. The loan can only be used for the purpose specified by the nonprofit lender or government. The majority of home owners with moderate to low incomes would probably be able to qualify, but the loans are not made available everywhere.
HECMs and proprietary reverse mortgages cost more than normal traditional home loans and they can also be considerably more expensive. The cost is something to keep in mind, especially if you are only going to be remaining in your current residence for a short period of time or if you just wanted to borrow a small amount of money. HECM loans have no medical or income requirements, can be used for any purpose, and are widely available.
Advances from reverse mortgage loans are non-taxable and should not affect your Medicare or Social Security benefits. The title of your home remains in your possession and you are not required to make repayments every month. As stated above, the loan is to be repaid when you the last surviving debtor dies, the home is sold, or the home is no longer the debtor's main residence. In the HECM program, someone can live in a medical facility or nursing home for up to a year before being required to repay the loan.
If you are thinking about a reverse mortgage, keep in mind that:
- Many lenders charge an orientation fee and other closing costs for a reverse mortgage. The may also charge for service during the term of the mortgage. The lender sets the costs and fees in some cases, but orientation fees for HECM reverse mortgages are enforced by the law.
- With reverse mortgages, the amount you own increases over time. Interest on the outstanding balance is charged and added to what you owe every month. Your total debt rises as interest on the loan accumulates from the loan funds that are being advanced to you.
- Most reverse mortgages have variable rates that are directly tied to the financial index and will therefore change with market conditions. Some reverse mortgages do have fixed rates.
- Reverse mortgages can use all of the equity in your home, but most do have a non-recourse clause that prevents your estate from owing anything more than the value of the home once the loan is paid.
- You keep the title to your home, so you have to pay for property taxes, utilities, fuel, maintenance, insurance, and whatever other expenses come with owning the home. If you do not keep up on your homeowner's insurance and property taxes, your loan could become due under the terms of your agreement, and you would then be forced to pay it.
- You cannot deduct the interest on reverse mortgage rates from your taxes until your loan is paid off partly or in whole.
While they are not right for everyone, these arrangements can allow you to get the liquid assets you need for making repairs to your home, supplementing your retirement income, paying medical bills, and many other purposes. As long as you take your time and do the necessary research to make sure a reverse mortgage is right for you, it can be a great tool to change your financial situation.
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