Reverse Home Mortgage Benefits
Reverse Home Mortgage Benefits For Seniors
For decades now, older people have found themselves in a challenging situation, especially once retired and on a fixed income. Many live in lovely homes that are paid off, but they struggle to make ends meet every month as property taxes continue to escalate and as problems with the home crop up, along with general inflation. A reverse home mortgage can be just the solution for those over 62 who have a great deal of equity in their homes.
The Benefits Of Using A Reverse Mortgage
There are several major benefits that seniors can enjoy through the use of a reverse mortgage on their home. The biggest benefit that gets the most attention and that motivates most people to consider this option is the fact that this type of mortgage pays the homeowner. The homeowner can choose to receive the proceeds from a reverse mortgage loans as one lump sum or it can be received each month to supplement the income of the seniors.
This is different from a traditional home mortgage in which the lender must be paid every month until the home is paid off. The reverse loan allows the homeowners to tap into the equity in their home, but all of the people on the title of the home must be over 62 years of age, at least in the US, for this option to be available.
How Much Equity Does Your Home Have?
Reverse mortgages are available to those who are at least 62 and who have a considerable amount of equity in their homes, even if they still have a balance on their current mortgage. In this situation, the original mortgage and any other liens on the home are paid off first from the proceeds of the reverse-style mortgage.
Once that is taken care of, the balance of the reverse mortgage can be paid out as a lump sum, which comes in handy if the homeowners want to do renovations, have repairs done on the home, take a vacation, or have other needs for the lump sum of cash. Alternatively, they can choose to receive monthly payments from the mortgage company instead, which can help to boost their monthly cash flow.
Many prefer to receive the payments each month because the interest on the reverse mortgage loan begins to accrue as soon as a payment to the homeowner is made. With a lump sum, the interest amount they pay will be higher as opposed to receiving a smaller amount each month. Therefore, less interest will be charged when a smaller amount is paid out to the homeowners on a monthly basis.
Whichever way a homeowner chooses to access the equity in their home through this type of mortgage loan arrangement, the money received is considered loan proceeds and so it does not affect their status with Social Security and it is not taxable. Because of this, a reverse home mortgage can help older homeowners be much more comfortable in their retirement years without putting their other benefits in jeopardy at all.
Decisions Based on Home Equity
Once you have decided that a reverse home mortgage is the right financial step for you to take, the next thing you need to do is find a reverse mortgages lender. There are many companies these days that are competing for your business when it comes to securing this type of mortgage, so you should take your time and shop around for the best deal.
Main Points To Consider
- A reverse mortgage lender does have to operate according to some Federal FHA regulations, so they cannot charge an excessive origination fee to write the loan. There is a cap at this time of $6000 for reverse mortgage loans, but the lenders can charge less than that in an attempt to attract borrowers and be more competitive.
One thing that is governed by the FHA regulations is that the origination fee cannot be paid out of the proceeds of the reverse loan. These costs have to be paid out of pocket. Many times seniors will turn to family members for help with these expenses knowing they will be able to pay them back as soon as the loan goes through.
- There are very few qualifications that a senior homeowner must meet to be eligible for a reverse equity loan. The first requirement is that all owners on the title of the property must apply for the loan and all of them have to be 62 years old or older. Also, the home has to have a certain level of equity in it or has to be paid off already, depending on the guidelines the lender has set for their operations.
Reverse mortgage lenders don't even need to review the borrower's credit scores as they do with a traditional mortgage because they are not lending based on creditworthiness. Also, there are no income requirements that the borrower needs to meet either because the loan is based on the equity in the home and a guess as to how long the homeowners will still be around to collect their monthly payments from the lender.
- Depending on the needs of the senior homeowners, the reverse mortgages lender may be willing to also pay out a lump sum at the time of origination, in addition to making monthly payments to the borrowers. These are terms that are somewhat negotiable and if the first lender does not offer the right conditions for you, including interest rate and payment amounts, then go out and talk to other lenders and compare what they are willing to do for you.
Helps Seniors In Financial Difficulty
Reverse mortgage benefits can even extend to those who are having so much financial difficultly that they are facing foreclosure. Because there are no income or credit qualifications to meet, a senior homeowner can easily tap into the equity in his home to pay off the balance of his mortgage, in order to keep the home from going into foreclosure. However, it is important to move fast and not let the mortgage get too close to foreclosure.
Regardless of whether there is danger of a foreclosure or simply a balance on an existing mortgage, the first thing that is paid out from the proceeds of a reverse mortgage is any outstanding loan balances or liens that are on the home. Once the home is completely free and clear, the senior homeowners can then decide how they want to receive their payments. They can choose to receive an amount each month that can supplement their monthly income, or they can get a lump sum if they have a need for a chunk of cash.
One thing to consider is the interest that is charged on any amount that is received. If the homeowners get all of the available equity out of their home in a lump sum right up front, then they will pay more interest than if they receive payments each month. However, the interest is not paid during the life of the homeowner, but only accrues and is paid when the reverse loan comes due after the death of all who are on the title and who have taken out the loan.
The reverse home mortgage instrument is a great way for people to be able to stay in their beloved homes and have a great deal of financial stress removed from their shoulders. Should the homeowners decide to sell the home and move, the loan will be due but should be easily paid off from the proceeds of the sale of the home.