A few years ago Reverse Mortgages were not viewed in a positive light. Media coverage focused on the few cases where the borrowers didn't understand that even though they didn't have a mortgage payment; they did need to pay their property taxes and insurance.
Things are done differently now to help ensure this doesn't happen going forward. Now, credit reports are pulled to be able to calculate debt payments, home owners insurance and property taxes.
If it looks like the borrower might struggle with these payments, a LESA can be established. This is a set aside amount from the proceeds of the Reverse Mortgage to ensure the taxes and insurance are paid in a timely manner. LESA is a Life Expectancy Set-Aside.
To describe a Reverse Mortgage it can be viewed as a deferred payment loan. The borrower takes funds out of the equity of the home. And, payments are deferred until the loan is paid off. It can be tailored to your needs.
If you are 62 years of age or older, you may qualify for a Reverse Mortgage. If you have substantial equity in your home or own your home free and clear, you may qualify.
Throughout our lives we learn that retirement accounts and Social Security income are the tools we use to fund our retirement years. But few realize they can tap into the equity of their homes. This is a major game changer. Plus it is a tax free income stream.
Reverse Mortgages allow people the freedom to stay in their homes and age in place. They can use the funds however they want. Add a room or two, renovate the kitchen, pay off debts, or have funds go into your account each month.
Reverse Mortgages are FHA loans. An upfront mortgage insurance premium is added to the loan balance. Also, a monthly mortgage insurance fee is added each month to the balance along with the interest due.
At the same time the value of your home will appreciate. Standard expectation is the appreciation will be 4% each year. Reverse mortgages are a powerful way to leverage the equity in your home.
Here is an example of how a reverse mortgage can be used:
A client of mine owned her home free and clear and had enough funds each month to pay her taxes and insurance but wanted to have extra funds each month to be able to go on cruises with her girlfriends.
Getting a reverse mortgage allowed her to have extra discretionary income to enjoy going on cruises and life in general.
Another client was married to a Veteran. He fell ill and moved into a Veterans Home. His VA disability and Social Security then had to be paid to the Veterans Home.
This left the wife with just her own Social Security income to live on. She had a few little debts and decided she wanted to receive $400 per month to give her freedom to be able to go out with friends.
There are numerous companies offering home help and care. With a Reverse Mortgage, one can easily hire someone to help take care of anything you need.
After you no longer live in the home, it is treated the same as it would be with a regular forward loan. The loan is paid off with either a refinance or purchase loan in the names of who will be inheriting the home or purchasing it. If there is a younger spouse, they can stay in the home keeping the reverse mortgage in place.
Another way to structure things if you would like to move into a smaller home is to use the reverse mortgage to purchase the new home. Use the proceeds of the sale of your home to put down as a down payment and obtain a reverse mortgage for the rest of the purchase price.
Reverse mortgages have been designed for savvy seniors giving them no mortgage payments, flexible cash options, maintaining their home, and controlled risk.
The concept of reverse mortgages is a bit strange at first but makes so much sense once you learn more about them. It is a great way to use the equity in your home to increase your income and improve your lifestyle.
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