Also known as home equity conversion mortgages (HECMs), Reverse Mortgages are a type of home loan extended exclusively to older individuals, i.e., those over the age of 62 years. Such a loan allows aged homeowners to convert part of their home equity into cash, which may then be used to meet their needs. Fundamentally speaking, with a reverse mortgage, it is not the lender who is receiving a monthly installment from the borrower but the other way around. In fact, the borrower is not expected to pay back the loan unless the home vacated or sold. Here are all important facts about reverse mortgages you need to know.
Reverse Mortgage Entails No Monthly Mortgage Payment
Since the homeowner is receiving the loan against the equity in their home, they do not have to pay any monthly mortgage to the lending bank. However, they do need to pay all real estate taxes, homeowners insurance and homeowners association dues levied on their property. Some reverse mortgage companies due attempt to dupe the elderly by having them sign up for an annuity/life insurance so do your homework and choose the right lender.
Determinants of Eligibility
Reverse mortgages are a special financial product designed for individuals over the age of 62. It is a known fact that such individuals have few or no sources of income and typically live off of their social security. Thus, neither their income levels nor their credit rating is considered an important criterion in determining their eligibility for a reverse mortgage. In fact, since there is no monthly mortgage the loan-seekers have to pay, their earning/returning capacity has no relevance to lenders.
Reverse Mortgages For People Who Run Out of Money
It is a known fact that such individuals have few or no sources of income and typically live off of their social security. Thus, neither their income levels nor their credit rating is considered an important criterion in determining their eligibility for a reverse mortgage. In fact, since there is no monthly mortgage the loan-seekers have to pay, their earning/returning capacity has no relevance to lenders.
The proceeds from reverse mortgages can be used as desired.
Lenders do not stipulate how the proceeds from reverse mortgages are to be used. It is not as if they may be reserved only meant for investment purposes or medical care; a homeowner may use it as and when they desire. You could invest it, use it for meeting daily expenses, go on a vacation, spend on your friends or family and so on. The bottom line is, the money is yours, and you’re free to do what out what you desire with it.
Reverse Mortgage Doesn’t Impact Social Security Or Medical Care
You might think that having a reverse mortgage loan may impact other proceeds such as social security and medical care. However, that is not the case. In taking up a reverse mortgage, you’re releasing home equity, the earnings from which, are not considered as an income. Typically, you are safeguarded against the stalling of any other benefits but to be on the safer side, have a financial expert go through your policy documents before you get a reverse mortgage.
Individuals Retain Homeowner Benefits Even After a Reverse Mortgage Closes
Do not think for a second that after a reverse mortgage closes, the lender now owns your home or has any claim to it. Even with the exhaustion of your loan, you remain the homeowner with all rights and benefits of that title accruing to you. The loan will only be due for return if you choose to sell the home you had a reverse mortgage against.
Unbiased Information About Such Loans Can Be Obtained From Local HUD Facilities
Getting a reverse mortgage is contingent upon an independent counseling session that is approved by the Housing Urban Development or HUD. Various local HUD-approved facilities exist all over the country though if there isn’t one near your place of residence, a telephonic session may also suffice. During the counseling, you will receive unbiased information regarding such loans, and any queries you may have are resolved too.
Certified Financial Professionals (CFPs) recommend these for retired individuals.
Over the years, reverse mortgages earned a bad reputation on account of the fraudulent schemes offered by some low-key reverse mortgage lenders. Many CFPs too, became wary of them. However, with more checks and measures in please, reverse mortgages have come to be acknowledged as a unique financial product that may aid the cause of stress-free retirement for elderly folk. Consult a CPF before signing up for further reassurance and verification of scheme.