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SO WHAT EXACTLY IS A REVERSE MORTGAGE?

A reverse mortgage is a unique type of home equity loan that can provide lifetime Tax-Free income to seniors 62 or older. Senior homeowners that have accumulated large amounts of equity over many years of homeownership, now have a way to tap into this asset through a reverse mortgage and never make another monthly mortgage payment as long as they live in the home. Before this financial tool was available the only way to tap into this asset was to sell the home. Most people do not find this an acceptable option at this stage of life.

HOW DOES A REVERSE MORTGAGE WORK?

A Reverse mortgage works in exactly the opposite way that a “forward” or regular mortgage loan works. American Association for Retired Persons suggests, that one way to think about this mortgage is to visualize it as a “rising debt – falling equity” loan. This is very different from the purchase mortgage you used years ago when you first bought your home. That loan was considered a “rising equity – falling debt” loan. Although it was comforting to know you were building up equity over the years and working toward becoming mortgage free, now that you are there, you might be feeling a bit house rich and cash poor. Yes, the home is paid off or nearly so, but you may be having difficulty making ends meet from a cash flow standpoint. Your largest asset might very well be your home. But the only way you can access the cash, other than through a reverse mortgage, is to sell your home. Consequently, now might be the perfect time to consider reversing tapping into your home equity in order to have the financial freedom you deserve.

With a reverse mortgage, the lender pays the homeowner tax-free disbursements based on the amount of equity in the home, the interest rate and the age of the owners. The senior is not required to give up title, sell the home, or make monthly mortgage payments. The payment stream is “reversed” and the lender now makes payments to the homeowner as long as the senior continues living in the home. There are no income, medical or credit requirements to qualify for this type of home loan. The money can be used for any purpose.A Reverse Mortgage is a safe way for seniors to access home equity without making monthly mortgage payments. The HECM Reverse Mortgage Loan, endorsed by HUD and insured by FHA is the most popular reverse mortgage offered today. The purpose of this kind of loan is to allow you to receive cash from your home, without the obligation on your part to make monthly mortgage payments. The true beauty of this loan is that it does not require any repayment for as long as you live in your home.

Types of Reverse Mortgages

There are several different types of reverse mortgages. Some are more expensive than others. Types of reverse mortgages include:

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Single Purpose Reverse Mortgages

Reverse mortgages offered by state and local governments (often called “single purpose reverse mortgages”). These are typically the least expensive reverse mortgages. These may be the most restrictive on how the money received can be used.

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Home Equity Conversion Mortgages

Federally insured Home Equity Conversion Mortgages (HECM). These are almost always less expensive than other private sector reverse mortgages, but more expensive than reverse mortgages obtained from state and local governments.

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Alternatives to Reverse Mortgages

While usually an option that causes a negative emotional reaction, selling a home is an alternative to a reverse mortgage. The proceeds of the sale can be used to either rent, or purchase a smaller, more “age-friendly” home, while money leftover can be invested to provide additional income. This option should at least be considered and compared to a reverse mortgage so that an individual is making an informed decision.

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Reverse Mortgage Counseling

Counseling is required in order to obtain certain types of reverse mortgages. Counseling is required before an individual can obtain a Federally-insured Home Equity Conversion Mortgages (HECMs). Even if counseling is not required for a particular reverse mortgage.