What do you need to know about Reverse Mortgages?
For so many senior folks, the "Golden Years" aren't so Golden. Many of them are living on the paltry fixed income social security provides. It's anything but "security". They're settling for a life that is much less appealing than they would like it to be so that they have something to leave behind. But many seniors are recognizing the vastly improved quality of life a Reverse Mortgage can offer. Years ago the Reverse Mortgage was seen as something that should only be used in case of extreme emergencies, like a fire extinguisher.
But many financial analysts who understand the reverse mortgage see why someday soon it could replace the 401k the most utilized financial tool in retirement.
What do you need to know about Reverse Mortgages?
Here are some of the requirements: In order to be eligible, both homeowners must be 62 yrs of age or older. It must be your primary residence. And the amount you qualify for will be based on the following: the age of the youngest borrower, the home value (or value limit set by the county you live in), and the interest rate / type of program you're interested in.
There are 2 main types of Reverse Mortgages - adjustable and fixed. With respect to how you can receive your benefit, there are 3 ways: (1) lump sum, (2) monthly payment (3) line of credit. For example, let's assume you have a $400,000 home that has a $200,000 mortgage and you qualify to receive $250,000 as a benefit. $200,000 would be used to pay off the existing mortgage and the remaining $50,000 could be given to you as a lump sum ($50,000), a monthly income (perhaps $415 per month) or all $50,000 would remain in a line of credit available for you to draw against when needed. These options are available to you if you take an adjustable Reverse Mortgage. If, however, you take a fixed Reverse Mortgage only the lump sum option is available to you.
Note: if you decide to take the monthly draw, you will receive this amount for the rest of your life regardless of how long you live.
What do you need to know about Reverse Mortgages?
Some of the costs vary from company to company and these special financial transactions are not cheap. Since they are backed by FHA there is a mortgage insurance premium that is equal to 2% of either (1) value of home or (2) value limit set by county you live in, whichever is less. Example, a home value of $250,000 would have a mortgage insurance premium of $5,000.
The next cost is the origination fee, which can range from $0 to $6,000 ($6,000 is the max amount capped by law). And then like in a traditional refinance there are title and escrow charges. Typically, the costs can range from several thousand up to $16,000 or so. But the longer you have the Reverse Mortgage, the cheaper it becomes.
Here is a useful link to provide more information: http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
If you would like anymore information or would like to see what you qualify for, give me a call. It only takes about 5 minutes.
Good luck!!
Justin Lees
Sr. Financial Specialist
Paramount Equity Mortgage
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