With a reverse mortgage, homeowners who have enough equity in their homes can get the money they have saved up. They are meant to help seniors become more financially and personally independent by giving them money without asking for a monthly payment as long as they live in the home.
Homeowners who are 62 or older may get a lot out of talking to a lender or counsellor about the options and possibilities a reverse mortgage can give them. With these types of loans, you can borrow against the value of your home to create a steady, continuous, and tax-free source of income or a large source of extra income without having to change how you live.
The best thing about this type of loan is that you don't have to pay back any of it as long as you stay in your home and don't break any of the rules of the reverse mortgage. But you should take the time to learn as much as you can about this unique loan product because it might not be right for everyone. This is why we tell anyone who might be interested in a reverse mortgage to first talk to a HUD-certified counsellor or lender about their options.
Other great sources of information include family and friends who have dealt with reverse mortgages before, nonprofit organisations that help seniors, the AARP, the American Society on Aging, and authority websites on the internet that have helpful articles and resources about the reverse mortgage industry.
Even though reverse mortgages are easy to understand in general, it is important to know how they work. The name of the reverse mortgage loan comes from the fact that instead of making mortgage payments, the lender pays the borrower. This is the opposite of how the traditional mortgage loan works. The money you get comes from the value of your home, which is called "equity." The unique thing about this loan is that, unlike regular mortgages, where the loan balance goes down every time you make a payment, the loan balance goes up over time with a reverse mortgage.
With each payment, the loan's principal goes up. This includes interest and other fees that are added each month to the total amount you were given. All reverse mortgages let you keep your home, and many of them don't need to be paid back as long as you live there, pay your property taxes and hazard insurance, and keep the property in good shape.
When you move out for good, you have to pay off the rest of your loan. Also, it's important to know that your legal obligation to pay back the loan can't be more than what your house is worth on the market when you move out. This means that your lender can never ask your heirs or any other asset besides the property itself to pay back the loan.
Fannie Mae (Federal National Mortgage Association) offers two of the most important types of reverse mortgage loans today. These are the HECM and the Home Keeper. These loans guarantee that the borrower will never owe more than the loan balance or the value of the property, whichever is less. Also, the borrower doesn't have to use any assets other than the home to pay back the debt.
Also, unlike traditional mortgages, these loans don't have a fixed date when they will be paid off or a fixed amount. Many people who have taken out a home equity loan are sceptical about reverse mortgages because they think it's just a different kind of home equity loan or even a scam.
Because of this, it's important to know how home equity loans and reverse mortgages are different. With a HELOC (Home Equity Line of Credit), you have to make monthly payments to the lender to pay back the loan. In fact, you have to start paying back the loan as soon as you get it. If you don't make the monthly payments on a traditional home equity loan, a mortgage lender can foreclose on your home. This means you have to sell your home to pay off the loan or lose it to the lender.
Another big difference is that some home equity loans require you to re-qualify for the loan every year. If you fail to re-qualify, the lender may ask you to pay off the loan in full right away. Also, to get a traditional home equity loan, you need to have enough money and a low debt-to-income ratio.
Reverse mortgages, on the other hand, like the Home Equity Conversion Mortgage (HECM) and the Home Keeper Mortgage, don't require monthly payments. This means you don't have to go through the traditional, and often difficult, loan process to qualify. In fact, you don't have to pay back these loans as long as the property stays your main home and you keep up with your property taxes and hazard insurance payments. One of the things that makes the reverse mortgage so special is that you don't have to worry about your income to get one, and you don't have to re-qualify every year.
