- Real Estate
Reverse Mortgage 101
If you are 62 years or more and has at least 40-50% equity in your home than a reverse mortgage may be a good option. The reverse mortgage gives the borrower the ability to borrow against the equity in their primary residence. Instead of making payments to a mortgage company, the mortgage company makes payments to you.. As long as the borrower lives in the primary residence, the loan will never have to be paid back and any heirs will never owe more than what the home is worth and the owner always maintains title to the property. The borrower can elect for a monthly income, open line of credit, or take a lump sum.
The reason for doing a reverse mortgage is to provide more income for a better life, maybe, health care, paying off an existing mortgage, a trip or travel, a gift, home repairs, or just about any reason.
The benefits make the funds disbursed tax free income and the borrower owes nothing as long as they occupy the home as a primary residence at least six months out of a year. The loan can be repaid at any time and the loan is secured solely by the home, the borrower is not personally liable. Any left over equity in the home will pass to heirs if the borrowers state so.
All reverse mortgages are FHA loans.To be eligible, the borrower must be at least 62 yrs., own the home free and clear or have enough equity in order for the reverse mortgage to be able to pay off the existing mortgage. The home must be their primary residences and the borrower cannot be involved in a bankruptcy.
The types of property eligible are: single family homes, up to four units, if multiple, condos, manufactured homes, rural properties and planned unit developments. The amount the borrower can obtain depends on their age (the older you are, the more money you will get), home value, amount of equity, current interest rates and the type of reverse mortgage (fixed, adjustable, line of credit). The money received is tax free.
The reverse mortgage is a loan that needs to be paid back. Normally, is occurs when the last borrower moves out, sells the home, turns the homes into a rental or dies. The loan will be repaid either by the sell of the home or through another loan. If by death of the borrower, the heirs can choose to sell or buy the home to repay the reverse mortgage.
Reverse mortgages first began in the 1980's and have helped many seniors have better "golden years". But like Social Security payments, it is better to wait- the older you are, the more money you will get.