The mortgage market has been in a phase of correction for several months. As the home loan arena goes through a transition, certain types of mortgage loans are becoming popular by the day. Like mortgage refinances, reverse mortgages are on their way to gaining common acceptance nationally. The U.S. Department of Housing and Urban Development (HUD) fashioned one of the earliest reverse mortgages.
According to the HUD, its reverse mortgage is a private loan that is federally insured and can provide you better financial security. The reverse mortgage is mainly aimed at seniors who are looking to supplement social security, perform home improvements, meet unforeseen medical expenses, and more. Just like any mortgage loan, it's good to know more about reverse mortgages, and see if it is right for you.
1. What is a reverse mortgage?
A reverse mortgage lets a homeowner (62+ of age) convert part of their home equity into cash. This specialty mortgage lets you leverage the equity built up over years in your home. Instead of you making regular payments, mortgage payments are made to by the mortgage lender. Also, you are not expected to make repayments of the mortgage payments. The payments last as long as you continue to reside in your home.
Herein, the homeowner receives regular tax-free income without having to give up little in regards to selling their home or incurring new monthly mortgage payments.
2. How much cash can I get?
Your regular payments depend on your age (or the youngest spouse’s age in the case of couples), interest rates, and the appraised home real estate value. Generally, the more expensive your house and the older you are, the more your regular payments will be.
3. What types of homes are eligible?
An eligible home must be a single family or a two-to-four unit real estate property that you occupy and own. Other homes that qualify are detached homes, townhomes, condominium units, and certain trailer homes.
4. What are my payment options?
As a homeowner you have the flexibility of choice in receiving money from a reverse mortgage lender as fixed monthly payments, a lump sum, as a set term, as a line of credit, or for the tenure of your life in your home. The most popular option for homeowners is the line of credit that allows you to draw money as needed until the credit line is exhausted.
5. Can I leave any estate to my heirs?
If you no longer use your home as a primary residence or sell your home, you or your estate will have to repay any reverse mortgage payments, plus fees and interest to the mortgage lender. The residual home equity, if any, belongs to you or to your heirs.