A reverse mortgage is known as a loan against your house and doesn’t require any monthly payments throughout your lifetime. This form of mortgage is only available for individuals aged 62 years or older. It offers some supplements for retirees with accrued home equity.
DETAILS OF REVERSE MORTGAGES
To define a reverse mortgage, let’s compare it to a regular mortgage. If you have a regular mortgage, you need to make monthly payments to the lender. This ensures you reduce the balance and, therefore, accrue equity.
However, with reverse mortgages, seniors don’t have to bother about paying back the loan every month, provided they live in the property and don’t default on taxes and insurance. This type of mortgage allows the older adults to get payments as the interest increases. Also, there will be a reduction in home equity.
WHO CAN GET A REVERSE MORTGAGE?
Here are the factors that determine the eligibility for a reverse mortgage:
- Someone aged 62 years or older
- Someone who owns a home that serves as their main residence
- The house should be in good condition
- The house can be a multi-family or single-family home. Otherwise, it can be an approved manufactured home or condo
- A counseling session with an approved HUD counselor. This is to make sure that you are truly convinced that you need a reverse mortgage
In addition, older adults must have a financial assessment. This assessment determines if you have paid the following:
- Property taxes
- Homeowner’s insurance
- Homeowners Association fee (in cases where it is applicable)
- Basic home maintenance
HOW MUCH CAN A SENIOR QUALIFY FOR?
The amount depends on:
- The appraised value of the property
- The age of the youngest partner
In most cases, the loan-to-value (LTV) is around 50% to 70% of the home value.
MORE DETAILS OF REVERSE MORTGAGES
Here are other things you need to know about reverse mortgages:
- The payment for the loan must be done after the death of the last surviving borrower. The heirs of the property must refinance the home within 6 months if they want to keep it or sell it within 12 months.
- As long as the borrower is alive, they must continue to stay in the house and pay the homeowner’s insurance, taxes, and other associated property costs.
- The heirs of the estate can have the inheritance as long as they have paid the balance of the loan.
- A reverse mortgage doesn’t affect your Social Security and Medicare. However, it may have effects on Medicaid, Medical, and other needs-based schemes.
WHAT ARE THE MERITS OF REVERSE MORTGAGES?
The advantages of a reverse mortgage include:
- Access to lots of cash
- Extension of the life of other savings
- Increase in value of the loan
- No time limit for when it must be repaid
WHAT ARE THE DEMERITS OF REVERSE MORTGAGES?
A reverse mortgage means that you are spending some of the inheritance of your heirs. Therefore, before taking a reverse mortgage, people in their golden age over 55 should discuss the issue with their family members.
WHAT DOCUMENTATION DO YOU NEED TO GET A REVERSE MORTGAGE?
To get a reverse mortgage, here are the things you must present:
- A copy of your driver’s license
- A copy of your homeowner’s insurance policy’s declaration page
- A copy of your Social Security card
Others you may need include:
- A copy of a trust, if the house is under a trust
- A copy of the mortgage statement
- Your bankruptcy discharge papers (if this applies to your case)
- A copy of the Power of Attorney (if another person is signing for you)
WHAT HAPPENS IF YOU CHANGE YOUR MIND
If you change your mind, you only have three days to cancel the loan. Once it exceeds three days, you cannot change it. Besides, different lenders use various processes for canceling reverse mortgages.
Now, you understand everything you need to know about reverse mortgages.