Reverse Mortgages (HECM) Loans

What is a Reverse Mortgage?

A Reverse Mortgage or Reverse Home Mortgage is designed for seniors over 62 years of age to improve their retirement life style. The reverse mortgage has exploded in recent years, due to growing popularity. Beauty of a Reverse Home Mortgage is that you get all the benefits of selling your house and all the benefits of getting a home equity loan – but you can still live in and retain ownership of your home and you don’t have to make any payments against the loan over time. Reverse mortgages in essence are designed to help retirees with limited income use the wealth in their home to pay for retirement expenses like health care and monthly living expenses.No matter how you structure a Reverse Mortgage, there are absolutely no restrictions on how the proceeds of the loan may be used, you typically don’t pay anything back until you die, sell your home, or permanently move out. On top of that, your ability to secure a Reverse Mortgage is not dependent on your credit history, income level, health or any other factors that might make a home equity loan expensive or problematic.

The major eligiblity criteria for most Reverse Mortgages is that you must own and reside in your home and be a senior 62 years of age or older. (In most cases second homes, apartment buildings and homes less than a year old are not eligible for a reverse mortgage.) The most popular reverse mortgage is the Home Equity Conversion Mortgage, or HECM. HECM Loans are administered and insured by the FHA (Federal Housing Administration) and it’s completely safe.

Amount you get as a result of reverse mortgage loan is not taxable, and in most cases do’nt affect other benefits like Social Security or Medicare. You retain the title to your home and do not have to make monthly repayments. The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.

Key factors that make a reverse mortgage attractive are:

  • No repayment of the loan as long as the borrower occupies the property as his/her primary residence.
  • Income, asset, or credit qualifications doesn’t play a role.
  • Homeowners retain title to their home.
  • In most cases no tax or benefit deductions on the proceeds used as “income”.

Benefits of Reverse Mortgage

Reverse mortgage products offer a wide variety of benefits for seniors. The most obvious benefit, of course, is the availability of ready cash without a return to the workforce, the repayment obligations of a conventional loan, or accruing credit card debt at a substantial rate of interest. This source of funds can make a remarkable difference between a subsistence retirement and one that is enjoyable and free of the usual money worries.

A reverse mortgage does not affect pension benefits. This is best done when the equity is used to finance an ongoing income stream rather than being taken as a lump sum payment. Funds can be used for any worthwhile purpose, such as travel, home improvements, or the purchase of a new car.

Some key benefits include:

  • You can pay off your mortgage
  • Reverse mortgage “income” is tax-free
  • You will continue to own your home
  • Allows You The Ability to Eliminate Mortgage Payments
  • No monthly payments
  • No up-front fees collected
  • There are no restrictions on how the money is used
  • You can repay at any time with no pre-payment penalty
  • Reverse Mortgages are flexible

The older you are, the more money you can get. Seniors must be at least 62 years old and must own their home. Eligible homes in this case include single detached homes as well as HUD-approved condominiums and dwellings.

There is an obligatory mortgage insurance associated with reverse mortgage. It means that if the selling price of your home is lower, than the amount of costs, the difference is paid from the insurance. Your other assets will never be used to pay your reverse mortgage loan. You will borrow the more, the older you are, the lower is the interest rate and the more valuable is your home. Actually you can decide, whether you take the reverse loan with variable interest or with the fixed one.