What You Need to Know About Reverse Mortgages
How Do Reverse Mortgages Work?
Both standard and reverse mortgages use your home as collateral, but they differ in two ways. Firstly, you receive money instead of paying out money to lenders every month. Secondly, while mortgage amounts decrease over time, the amount of your reverse mortgage increases. Reverse mortgages are like re-mortgaging your property or receiving an equity loan.
Reverse mortgages are only available to people over 62 and older. The best part of these loans is they don’t need to be repaid until you move home. These loans can pay for home improvements or supplement your retirement fund, so they can be very beneficial. However, they come with many implications.
What Can You Get?
The amount of your loan depends on many factors and estimates on how long the loan will last.
Interest Rate
The lower the interest rate, the more money you’ll receive.
Equity
For homeowners who have paid most of their mortgage off, they’ll be offered a much higher loan amount. It’s beneficial to consider waiting until you’ve paid a lot of your mortgage to benefit from a larger loan.
Age
Older borrowers can get a bigger loan than younger ones. However, it’s important to remember than if an older borrower excludes a younger one from the loan, then in the event of their death the younger person would have to vacate the property.
Payment Options
There are loads of options when it comes to receiving your payments, including:
Lump Sum
If you want to receive the money in one lump sum, it will have a fixed interest rate. The balance will grow over time as the interest accrues.
Regular Payments
Some people prefer to receive regular payments instead of risking spending a lump sum. They can last for a period of time, or the rest of your life depending on what suits you. This is ideal for people that want long term security.
Line of Credit
If you want extra money but don’t necessarily want to access it, then choose a line of credit payment option. You won’t have to pay interest unless you spend any money.
You can also choose a combination of all three choices by speaking to your provider.
Repayments
There are no monthly repayments with reverse mortgages. You pay back the money when you move out of the home or if you pass away. However, if the terms aren’t met, then you may become eligible to repay the loan before either of these events.
In most cases, reverse mortgages are paid off when the home is sold. If you choose to move to a smaller home, then you can keep the difference when the cost of the new home is less than your reverse mortgage amount. If your heirs want to keep the home, then they will need to cover the cost of the loan in full.
Basic Requirements
If you want to apply for a reverse mortgage, you need to know what the minimum requirements are:
â— You must be a minimum of 62 years old.
â— If you have any government debts, you must pay them regularly.
â— You have a sufficient amount of equity from your home.
â— The lender will want to know that you can afford to keep the home in good condition to not decrease value.
Before you start the loan process, you’ll have to attend an information session with an HECM counselor. They will discuss whether the loan is right for you and answer questions you have. Reverse mortgages can offer you a better quality of life, but you should consider whether they’re right for you in the long-term.