Juggling your finances after retirement can be difficult no matter how careful you’ve been. If you’re a senior struggling to make ends meet after retirement, or if your parents are in this situation and you’re looking for an option to help them, a reverse mortgage loan could help.
Reverse mortgages, also known as home equity conversion mortgages (HECM), are federally insured loans where the homeowner gets payment from the lender based on the equity in the home. The homeowner converts their equity into cash which they can spend as they choose, all while continuing to own their home. Here are some of the ways a reverse mortgage can help your family.
It’s very easy to qualify for an HECM, unlike a typical loan, because you will not be expected to repay the loan until you leave the home. The simple requirements are as follows:
- The youngest homeowner must be at least 62 years old
- The home in question must be the homeowner’s primary residence
- The homeowner must be able to financially maintain property taxes, homeowner’s insurance and other maintenance expenses.
- Qualification is NOT based on your current income or credit score
To see if you qualify, contact an HECM lender. They’ll determine if you qualify and get you started with the process.
No Payments Until You Leave Your Home
Once you’ve qualified and started receiving payment(s), you won’t be responsible for repaying the loan until the last homeowner leaves the home. You may receive payments in whatever method best suits you, either in lump sum, in payments, or with a combination of both. It is also available to you as a line of credit.
Additionally, your payments will be tax-free because they are not earned income, instead coming directly from the equity already paid into your home.
Only upon the last homeowner’s passing or if the homeowner moves will the loan be called to repay. The house is then sold to repay the loan, and any remaining equity is returned to the homeowner or their heirs. This is also the time interest rates, mortgage insurance premiums and lenders fees are paid.
HECM loans are extremely secure as they are insured by the federal government to ensure borrowers’ safety. The government insures and guarantees all your payments, as well as the continuation of credit lines.
The government also makes sure a borrower never has to pay back more than the house is worth, and insures the allocation of remaining equity. That means if your home is worth less than the loan, you will only be expected to pay the less amount. If your home is worth more than it was originally, the sale of the home will still easily cover the repayment of the loan.
HUD (the Department of Housing and Urban Development) also requires a counseling session with all reverse mortgage applicants to make sure they are fully informed before making a decision. The government is dedicated to fight predatory lending and make sure reverse mortgages serve their purpose- to give financial aid to seniors.
Keep Your Home
One thing most borrowers appreciate about reverse mortgage loans is that they allow the homeowner to stay in their homes. While you remain responsible for property tax and homeowner’s insurance, you also retain complete control of the home and can even sell it and repay the loan whenever you like.
If you think a reverse mortgage is a good option for you or your family, try out a reverse mortgage calculator and seek the expertise of an experienced lender. The process is simple but there are many ways to customize your loan to your specific needs. In many cases, seniors living on fixed income can find financial relief by using a reverse mortgage.