Who Qualifies for a reversible mortgage ?
If you live in the US, you can qualify for a reverse mortgage if you are at least sixty two years of age and you are a home owner. Basically with a reverse mortgage, you are allowed to borrow in the form of a bank loan an amount against the value or equity of your home. The one basic advantage of this is that you don’t have to pay back the loan as long as you choose not to sell your home and remain living in it. This offers a great alternative to those who would like to increase the amount of money for their retirement without having to take out a regular loan and make monthly re-payments.
How a reversible mortgage works.
Simply put, a reverse mortgage is when a lender or loans company makes you payments based on a certain percentage of the value of your home. If you no longer occupy the property, such as in the case of death for example, the lender can sell the property in order to recover the loan that was paid out to you.
Although there are different types of reverse mortgages that exist, they generally have these things in common.
1.) Older home owners can usually benefit from larger loan amounts than younger ones and the more expensive the home, the larger the loan it can qualify for.
2.) In order to qualify for a reversible mortgage , there can be no other outstanding debts against the property, if so, then all other debts must be paid prior to receiving the reverse mortgage, or other lenders must agree to subordinate their loans to the main mortgage holder in question.
3.) It is possible to negotiate the financing fees in the cost of the loan agreement.
4.) If the owner can no longer maintain the property, defaults on property taxes, commits fraud, fails to keep it insured, or declares bankruptcy, then the lender has the right to reclaim payment or repossess the property if the loan cannot be re-paid.
Also the owner cannot take any other loans against the property,nor rezone, sublet, or add a new owner to the properties title.
Who Qualifies for a reverse mortgage
What are HECM loans ?
Since the 1960’s reverse mortgages have existed to help home owners take advantage of borrowing on their homes to help pay for whatever the money was needed. However since 1989 the US department of housing and urban development has introduced a new kind of reverse mortgage known as Hecm or home equity conversion mortgage. These are the only types of reversible mortgages that are offered by the federal government. The advantages is that they help reduce the cost to the borrower and they also insure that the lender will meet the required legal obligations . The main disadvantage with HECM loans are that the maximums amount for a loan is limited.
Of course, if anyone is interested in non HECM loans, there are a multitude of lending institutions available that offer reverse mortgages. The advantage over HECM loans is that the a borrower can receive a substantially higher amount, but of course will most likely be faces with higher fees as well.
The government has set the origination of the Hecm loan at two percent of the total value of your home, however depending on the lender, the cost of your loan may still vary greatly from one loans company to the next. What creates these variances in cost are third party closing fees, mortgage insurance and general service fees incurred for the whole process.
However the government has implemented what is called a ‘truth -in-lending’ law that requires reverse mortgage lenders to be totally transparent and present borrowers with a full disclosure as to the total annual costs of the loan. (TALC)
When comparing loans from different lenders, it is advisable to use these figures to determine the best terms for your reverse mortgage. The amount allocated in the loan will largely depend on what type of income options are selected.
Some of the income options available are, credit lines, monthly cash advances and lump sum payments.
One of the most interesting of features for a HECM reverse mortgage is probably the credit line, because as the interest rises , the more money is available to the borrower.
Borrowers can select from a few different options in regards to their interest rates. HECM interest rates are tied in with the the one-year U.S.treasury security rate. It is possible to choose from interest rates that change every month or opt for a change every year.
Any fluctuation in the one-year U.S. Treasury security rate will reflect on the interest rate of the reverse mortgage. The annual interest rate is capped at two percent per year or five percent over the life of the reverse mortgage. The difference between a yearly adjustable rate and a monthly rate is that the monthly adjustable rates are lower to start with. These typs of rates can fluctuate as much as ten percent over the life of the loan.
It is important to understand that taking out a reverse mortgage can affect your current finances.
There are many costs and legal fees involved. Also due to interest on the loan, your debt will increase overtime. So its very important to carefully consider your situation before opting for a reverse mortgage.
If a situation arises such as that you will need to vacate the premises, or your financial status has changed and you no longer can afford the upkeep of your property, you may be forced to sell your home. In such a case all debts related the loan will be paid off with the proceeds of the sale, which can leave you or your heirs with very little.
In conclusion you should carefully weigh your options, and do some diligent research on the topic , compare prices with loans companies, and review disclosure documents. Consider the implications that the source of income a reverse mortgage will provide as an investment strategy.
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