What is a Reverse Mortgage and is it Right for You?

A reverse mortgage is a financial option available to seniors which allows them to free up some of the accumulated equity in their home.  This may be an appealing option for obtaining some extra income in your retirement to use for a variety of reasons; however, there are some important considerations to weigh before borrowing against your greatest investment.  Here are some facts about reverse mortgages, and some tips for making the right financial choice.

Sometimes called a lifetime mortgage, a reverse mortgage or Home Equity Conversion Mortgage, allows you to borrow against the equity in your home, which can be paid out either in one lump sum, in several payments over time, as a line of credit or a combination of monthly payments and a line of credit. This amount does not have to be paid back to the lender during your lifetime provided you stay as a resident in your home and it remains your property.  That percentage of the value of your home which you have taken out now becomes the property of the lender, and will be returned to them after the sale of the home.  Your heirs still inherit the property upon your passing, and they have up to one year from that time to either refinance the property, or sell it and keep the remainder of the proceeds for themselves.  At no time will your heirs be liable for any
shortfall should there not be sufficient proceeds from the sale to cover the outstanding debt.

Depending on where you live, the qualifications for a reverse mortgage may differ.  In general you must be 62 years or older, however, your spouse may be younger. There must be no outstanding mortgages on the property upon which you are borrowing, and you must have sought the advice of a qualified financial advisor in order to prove that you fully understand the process.  You can use the monies from a reverse mortgage for whatever you want, as there are no restrictions.

Again, depending on where you live, the amount of equity you can receive from your home with a reverse mortgage will differ.  In the U.S. there is a maximum limit of  $636,150, no matter what the value of your home, but for most homeowners the amount will be considerably less.  The actual amount you will get depends on a variety of factors such as the current appraised value of your property, the interest rates at that time, your age, and whether you want a lump sum payment, a line of credit or monthly payments for the rest of your life.

For more information on borrowing use the following link:

To calculate how much you
could borrow use the following link:

You can use a Reverse mortgage (a.k.a. HECM or Home Equity Conversion Mortgage to actually purchase a home.  You are still required to be over 62 and get counseling prior to writing the contract and you must pay all closing costs yourself.  There are no debt-to-income ratios and no minimum credit score.  You will be required to make a significant down payment, but the older you are the lower the payment.  You can make payments on the mortgage at any time (even though you are not required to do so) with no prepayment penalty.  As an example, say you have $150,000 to buy your retirement home. With the HECM you would use that as a down payment to purchase a $300,000 home.  If one partner dies, the spouse is entitled to stay in the home for as long as needed.  There is no requirement to sell until both spouses have moved out for 12 months, allowing the estate plenty of time to either sell or make new finance arrangements.

As the HECM is a non-recourse loan, the estate is never liable for any shortfall in the repayment of the loan from the proceeds of the sale of the home.  If the home sells for more than the outstanding loan, all excess proceeds will go to the estate, not to the lender.

Reverse mortgages can be a great addition to your retirement income, but being sure you know all the facts before going ahead will ensure peace of mind for both you and your family in the long term.

For more information
and answers to your questions you can go to the following government website:

The National
Reverse Mortgage Association also has a website which can be found at:

The Reverse
Mortgage: A discussion guide from the Consumer Finance Bureau can be found at:

For help and
advice prior to getting a Reverse Mortgage talk to a HUD approved reverse
mortgage counselor.  Visit http://tinyurl.com/6q2ageg or call HUD’s
housing counselor referral line at (800)569-4287.

Please feel
free to call me or email if you have any questions and I will put you in touch with a mortgage professional specializing in this type of loan.

Valerie
McKean GRI, ABR

Owner/Broker
Century 21 Sterling Real Estate

REALTOR®

Tel:
910-430-9494