It’s no surprise to anyone when we say that the aging process is a difficult thing to handle financially. There are a growing number of seniors planning to retire soon that are struggling to figure out how they will continue to pay their mortgage, maintain their standard of living, and pay medical bills, make home improvements, etc. for many reasons. For many seniors, their home is their largest and most lucrative cash asset- and could be the golden answer in helping to solve their financial worries post-retirement. Enter reverse mortgages. With the Federal Reserve keeping interest rates at an all-time low, reverse mortgages are presenting themselves to be extremely appealing for home-owners aged 62 and older that are looking to tap into their home equity. This is why on March 1st, 2016, Alpha Mortgage started offering North Carolinian’s and Virginian’s reverse mortgages within their scope of services.
So what is a Reverse Mortgage?
According to the HUD, “A reverse mortgage is a special type of home loan for homeowners 62-years or older that lets you convert a portion of the equity in your home into cash. Unlike a traditional home equity loan or second mortgage, HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage.” Borrowers are still responsible for property taxes, homeowner’s insurance, and property maintenance, but a reverse mortgage requires no monthly mortgage payments, and borrowers do not have to pay back their loan balance until they die, sell, or move.
Reverse mortgages are extremely complicated, but are great for seniors that are cash broke/ property rich, or cash rich/ property rich. The interest and fees on the reverse mortgage are added to your loan balance each month. Over time, your home equity will decrease as your loan balance grows. It’s the reverse of a traditional mortgage. The rising loan balance can eventually grow to exceed the value of the home, however, as the borrower (or the borrower’s estate) you do not have to repay any additional loan balance over the value of your home. Wade Pfau of The American College and McLean Asset Management, highlights what consumers need to know about repaying a reverse mortgage with tips such as “Prior to death, selling, or moiving, repayments can be made voluntarily at any point to help reduce future interest due and to allow for a larger line of credit to grow for subsequent use. There is no penalty for early repayment.” Read more of his tips here.
Why would I get a reverse mortgage?
Reverse mortgages can be used strategically for many reasons. One of the biggest reasons that people take out a reverse mortgage is to stay in their current home without having to worry about their current mortgage payment.
Many people also open a line of credit with access to the cash over time to supplement social security, 401k, unexpected costs, or unexpected medical costs. People also use reverse mortgages to pay off existing mortgages, purchase a new home that better suits their needs with age, or as retirement income plans.
Sounds Great- Am I eligible?
To be eligible to receive a reverse mortgage, you must be at least 62 years of age or older, the property must be either 1-4 unit primary residences, condominiums, or manufactured homes that meet FHA’s requirements, homeowners must own the property as their primary residence and should have substantial equity in the home, borrowers must not owe any back debt to the government, borrowers are required to maintain the property in good condition to protect the value of the home, pay their taxes annually, and pay for their home owner’s insurance in accordance to HUD guidelines.
So there you have it! Reverse mortgages are great options for seniors who are interested in tapping into their home’s equity. As we mentioned earlier, reverse mortgages are excellent solutions for seniors, but can also be complicated, and aren’t for everyone. To educate yourself further about reverse mortgages, please visit our website devoted entirely to reverse mortgages here. If you’re ready to take out a reverse mortgage today, contact us, and let Alpha Mortgage ease in your retirement process.