Benefits of a Reverse Mortgage
Over 12,000 Americans turn 62 every day. One of the biggest concerns of those retiring from the workplace is how to maintain their lifestyle and manage their finances. Many people in this demographic prefer to continue to live in their own home and age in place.
One way is to utilize a Reverse Mortgage, otherwise known as a Home Equity Conversion Mortgage (HECM). It is a financial tool insured by FHA.
If you are 62 years of age or older and have sufficient equity in your home you may be able to feel more at ease with being able to stay in your home and have enough cash flow to enjoy the retired life you have been dreaming about.
Most borrowers use 60% of their principal limit during the first year. This amount can be higher if there is an existing home loan or federal debt to be paid off.
There are provisions in place to allow a qualified non-borrowing spouse to stay in the home and defer repayment when the borrower passes away.
The borrower’s credit, assets and income are reviewed to make sure the home maintenance, property taxes, home owner’s insurance, etc. can be easily managed. If there is some doubt, an escrow account can be set up for this purpose.
A Reverse Mortgage can be a great solution for an aging home owner who has gained a significant amount of equity and is concerned about having sufficient income to live comfortably.
With the Reverse Mortgage, the home owner can access a portion of their home’s equity to cover living expenses and not have to touch their investment savings.
The loan can be structured as a fixed or adjustable interest rate. The fixed rate loan product is used when the funds are disbursed as a single lump sum payment. Borrowers can choose to receive a monthly payment or a line of credit with an adjustable rate reverse mortgage.
The main benefit of using a reverse mortgage is that there are no housing payments to be made. When the reverse mortgage is used to pay off a current mortgage, it provides relief from having to pay the monthly principal and interest payment.
The borrowers only pay the property taxes, homeowners insurance, home owner’s association fees, etc. with a reverse mortgage.
The reverse mortgage is not required to be paid off until the borrowers die or move out of the home.
Borrowers do go through a counseling session to learn about the loan product so they can make an informed decision. This can be done over the telephone.
There are only two out of pocket expenses when obtaining a reverse mortgage. An appraisal to find out the value of the home will cost between $400 and $600. This is paid directly to the appraisal management company. The other fee is for the counseling session which is an estimated cost of $125 and it is paid directly to the counseling agency.
There will be the typical mortgage closing cost fees including attorney fees, title insurance, recording fees at the courthouse and credit report. The initial FHA mortgage insurance premium is added to the loan amount. It is 2.5% of the home’s appraised value if you draw more than 60% of the available principal limit and .5% if it is less than 60%.
Lenders charge an origination fee to process, underwrite and close your loan. This is normally 2% of the first $200,000 and 1% of the remainder.
You remain the owner of your home when you have a reverse mortgage. The deed is in your name.
When you think about it, a reverse mortgage does make a lot of sense. You have built up equity in your home which is a great asset. Why not use it to your best advantage?
No mortgage payments and the funds left in the line of credit earn interest. You get to stay in your home and enjoy it. When you weigh the cost of living in an assisted living facility vs. paying for home care visits, you’ll find that staying in your own home makes a lot of sense.
It is best as with any financial decision to learn all you can about a reverse mortgage before applying for one.
Article written by: JoAnn Moore, Licensed Mortgage Professional, NMLS #165477, The Mortgage Market of Delaware, LLC, 34011 Wescoats Road, Unit B4 Savannah Point, Lewes, DE 19958. 302.855.1306, 302.236.1229, MMODJoAnn@aol.com