Reverse mortgages offer a unique financial solution for seniors, allowing them to tap into their home equity without needing to sell their property. But what exactly are they, and how do they work? This guide will walk you through 12 essential facts about reverse mortgages, shedding light on their benefits, potential drawbacks, and everything in between. Whether you’re considering this option for yourself or a loved one, understanding these key points can help make informed decisions. From eligibility requirements to repayment terms, we’ll cover the basics and some lesser-known aspects of reverse mortgages, ensuring you have a comprehensive overview of this financial tool.
What is a Reverse Mortgage?
A reverse mortgage allows homeowners, typically seniors, to convert part of their home equity into cash. Unlike a traditional mortgage, where you make payments to the lender, in a reverse mortgage, the lender pays you.
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Reverse mortgages are for homeowners aged 62 and older. This age requirement ensures that the program targets retirees who may need additional income.
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You can receive payments in various forms. Options include a lump sum, monthly payments, or a line of credit, providing flexibility based on your financial needs.
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No monthly mortgage payments are required. Instead, the loan is repaid when the homeowner sells the house, moves out permanently, or passes away.
How Does a Reverse Mortgage Work?
Understanding the mechanics of a reverse mortgage can help you decide if it’s the right choice for you. Here are some key points to consider.
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Home equity is converted into cash. The amount you can borrow depends on your age, home value, and current interest rates.
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Interest accrues over time. Unlike traditional loans, interest on a reverse mortgage accumulates and is added to the loan balance.
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You retain home ownership. The title remains in your name, allowing you to continue living in your home as long as you meet loan obligations.
Benefits of a Reverse Mortgage
There are several advantages to choosing a reverse mortgage, particularly for seniors looking to supplement their income.
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Provides financial security. It can offer a steady income stream, helping cover living expenses, medical bills, or home improvements.
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No tax on loan proceeds. The money you receive from a reverse mortgage is not considered taxable income, which can be a significant benefit.
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Flexible spending. Use the funds for any purpose, whether it’s daily expenses, travel, or paying off other debts
Risks and Considerations
While reverse mortgages offer many benefits, they also come with risks and important considerations.
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Loan balance increases over time. As interest accrues, the amount owed grows, potentially reducing the equity left for heirs.
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Costs and fees can be high. Origination fees, closing costs, and servicing fees can add up, making it essential to understand all associated expenses.
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Impact on inheritance. Since the loan is repaid from the home’s sale, there may be less left for your heirs, which is an important factor to consider.
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You can get a reverse mortgage at age 55
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Some lenders offer reverse mortgages to people as young as 55 years old, though the age requirement can vary by lender and state. For example, the HomeSafe Proprietary Reverse Mortgage and the Jumbo Reverse Mortgage are both available to people aged 55 and older. However, the HUD HECM program requires borrowers to be at least 62 years old.
Other requirements for a reverse mortgage include:
The home must be your primary residence, where you live most of the year
The property must be a single-family home, townhome, condominium, or multi-family residence with one to four units where you live in one of the units
The home must be in good condition
Some say that taking out a reverse mortgage when you’re too young could mean you run out of money later in life when you might have less income and higher healthcare bills. However, others say that you can access more of your home’s equity when you’re older.
The requirements for a proprietary reverse mortgage are similar, with one exception. The minimum age required is only 55 years of age.
senior-lending.com/reverse-mortgage-age-requirements/
My father used to say, a house is an investment.
Right now in these times of an economic quagmire the equity in your home is all you have.
Some ppl during COVID tapped into their 401ks n retirements.
There’s used to be a caveat if a spouse isn’t if the required age + the other IS. If the age approved spouse dies, Where the borrower’s spouse was married to them when they took out the mortgage, they can’t stay in the home after the borrower dies unless they’re an heir and can pay the remaining debt.
Foreclosure Protection
Mortgagee Letter 2021-11, which provides guidelines for HECM lenders, says that a nonborrowing spouse of a reverse mortgage borrower may remain in the home after the borrower moves into a long-term care or other healthcare facility in some cases. The nonborrowing spouse may remain in the home as long as that spouse continues to occupy the home as a principal residence, is still married, and was married at the time of the issuance of the reverse mortgage to the spouse listed on the reverse mortgage.
This policy applies if the HECM constitutes a valid first lien on the home. Also, the loan can’t be due and payable for other reasons. Lenders may choose to comply with this directive effective May 6, 2021, but must comply by September 3, 2021.
And this
Unfortunately, the reverse mortgage lender may try to violate your rights.
The lender is required to communicate with you about the loan. If you were not a borrower, you are required to establish within 90 days that you have a legal right to stay in the home. You need to provide documents the lender requests. These documents could be a will, death certificate, court order, or marriage certificate. You must also continue to meet the other requirements, including paying property fees, taxes, and property insurance, and keeping the home in good condition. You must not live outside of the home for more than 12 months.
bals.org/help/resources/my-spouse-has-died-and-was-borrower-reverse-mortgage-what-are-my-rights
Options When a Spouse Dies with a Reverse Mortgage
Under the old reverse mortgage rules, non-borrowing spouses of reverse mortgage borrowers did not have the same rights borrowers did.
In fact, in some cases where both spouses were living in the house but only one was named on the home title, those non-borrowing spouses were left without many options after the borrower spouse died. These cases have been covered by mainstream media and often made headlines due to the unfortunate situation they presented.
But all that has changed. The federal government has implemented new rules to protect non-borrowing spouses of reverse mortgage borrowers. These changes, made by the Department of Housing and Urban Development, apply both to new non-borrowing spouses, and also to loans that were closed before the rule changes
For existing non-borrowing spouses:
If you took out a reverse mortgage loan before August 4, 2014 and you were married at the time to someone not named on the reverse mortgage, that spouse may be able to remain in the home even after the borrower dies, depending on circumstances.
A few criteria must be met in order for this to happen:
The marriage must have taken place before the loan was originated
The couple must remain married until the borrower’s death
The surviving spouse must maintain their home as his or her principal residence
Surviving non-borrowing spouses must establish legal ownership or right to remain in the property in certain cases.
There are some special circumstances for civil unions as well as same-sex marriages that were not permitted under state law at the time the loan was closed.
In addition, the surviving spouse must adhere to the loan terms and requirements. These include ongoing payment of property tax and insurance, property maintenance to Federal Housing Administration Standard and keeping a current homeowners insurance policy.
However, if the borrowing spouse was receiving tenure or term payments, or was accessing the loan proceeds as a line of credit, the non-borrowing spouse does not have the ability to receive these proceeds.
For new non-borrowing spouses: As of August 4, 2014, all new reverse mortgage borrowers with non-borrowing spouses were offered new protections under a rule from HUD.
For new case numbers assigned after that date (if you officially started your loan application by that date), non-borrowing spouses meeting certain criteria are able to defer repayment of the loan when the named borrower passes away.
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