Loan Options for Seniors: The Reverse Mortgage
A Reverse mortgage, also called a Home Equity Conversion Mortgage (HECM), is an FHA-insured loan available to Seniors aged 62 and over. These loans are designed to release the homeowner’s equity and provide cash for Seniors who want to “age in place.” Reverse mortgages can be a great option for Senior homeowners with significant equity in their homes.
In a conventional mortgage the homeowner makes a monthly amortized payment to the lender. After each payment the equity in the property increases, and typically after the end of the term (traditionally 30 years) the mortgage has been paid in full and the property is released from the lender.
In a Reverse mortgage, the homeowner makes no payments and all interest is added to the lien on the property. If the owner receives monthly payments, or a bulk payment of the available equity percentage for their age, then the debt on the property increases each month.
Basically, the more valuable the home, the older the borrower(s), and the lower the current interest rate, the higher the potential loan amount the Senior will be eligible to borrow.
Highlights:
- No income or credit score requirements
- Payment can be a lump-sum, monthly cash payout, line of credit held in reserve, or combination of all
- In many states can use proceeds for purchase of a new home
- The borrower is not obligated to repay the loan until they no longer occupy the home as their primary residence.
- The borrower retains title and control of the home
- The borrower will never owe more than the value of the property at the time it is sold
- Must be at least 62 years old
- Home must be the borrower’s primary residence
- Any existing mortgage must have a low balance
Restrictions:
Frequently Asked Questions:
Q: Can the lender take my home away if I outlive the loan?
As long as property taxes and homeowners insurance are kept current, there is no obligation to repay the loan until all borrowers on title no longer occupy the residence.
Q: How much money can I borrow against my home?
The loan amount will depend on your age, current interest rates, and the home’s appraised value or FHA’s mortgage limits for your area, whichever is less.
Q: Will I still have an estate to leave to my heirs?
When the home is sold, you or your estate will repay the cash received from the reverse mortgage plus interest and pre-determined fees. Any remaining equity belongs to you or to your heirs.
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