If you are 62 years old and live in your own home, you can make use of your home to earn a living. Your house needs to be your principal residence and it should have enough equity. You don’t have to sell your house but you can free up a portion of the equity that is trapped in your house. What is reverse mortgage and how it differs from forward mortgage can be better understood by going through the section below.
How does it differ from regular or “forward” mortgage?
Reverse mortgage is different from conventional mortgage loans or “forward” mortgage. In case of forward mortgage, you have to make monthly payments, your debt decreases and equity in the property increases. There is no eligibility criterion as far as age is concerned. You need to have a good repayment capacity and a steady income to support your payments.
On the contrary, in reverse mortgage, your equity diminishes and debt increases. You don’t have to make monthly payments. You can stay in the house as long as you are alive or your co-signer is alive, as long as you are not shifting from that place. As far as age is concerned, you need to be at least 62 years to apply for reverse mortgage. Since you are not required to make monthly payments, there are many reverse mortgage lenders who don’t take your income into consideration.
Types of reverse mortgage
There are 3 types of reverse mortgage you can opt for.
1. Home Equity Conversion Mortgages (HECMs): The HECMs are insured by the Fed. These are backed by United States Department of Housing and Urban Development (HUD).
Features of HECMs-
- The up-front costs may be high
- HECMs don’t take your income into consideration. There are no medical requirements either.
- You have to talk to a counselor before applying for HECMs.
- The amount you can avail in reverse mortgage under this program depends on your age, your home’s appraised value, existing interest rates in the market, the area you live. In other words, the older you are the more loan amount you qualify for and the less you owe.
2. Single-purpose reverse mortgages: The Single-purpose reverse mortgages can be used for only one purpose, for e.g. home improvement, renovating your home or for paying your property tax.
Features of single-purpose reverse mortgages-
- These loans are less costly.
- You won’t get them everywhere and they are available only in certain areas
- The purpose of the loan is specified by the non profit lender or the government.
- Suitable for people having low to moderate income.
3. Private loans: There are many private lending institutions offering reverse mortgage loans. These loans are developed by the companies you approach for a reverse mortgage loans.
Important aspects of reverse mortgage: Reverse mortgage loans have certain aspects that need to be better understood before you settle for one. They are as follows-
- The loan advances in reverse mortgage don’t attract tax. Your Medicare or Social Security benefits are not affected.
- You have to repay the loan when the last borrower dies, if you move away from the house or if it is no longer your primary residence. You will be required to pay back the loan if you are planning to sell off the house.
- You will have to make payments for closing costs, origination fees, loan servicing fees etc. The amount of fees is decided by the lenders.
- Reverse mortgage loans have variable rates as well as fixed rates.
- Reverse mortgage eats up the equity in your home over the years. You may have nothing to leave behind for your heirs.
Undoubtedly, reverse mortgage is of immense help to the elderly people. Moreover, you can decide how you want to be paid. You can take the money as a lump sum or monthly payments.
Useful Sites:
Jacksonville Home Mortgage – For mortgage related information visit this site