What You Need to Know About Reverse Mortgages

Have you ever heard of a reverse mortgage? It is a way for homeowners 62 years of age or older to leverage their home equity. With this type of mortgage, those who own their house outright or those with considerable equity they can draw from are allowed to withdraw a portion of the equity without the need to repay it until they leave the property.

You might be curious why anybody would wish to borrow against a property that they worked hard to pay off. Well, perhaps, understanding how reverse mortgages work would get you the answer. We share the basics that you need to know about reverse mortgages:

What Exactly Is a Reverse Mortgage?

As mentioned above, this is exclusively for homeowners aged 62 and higher – those who typically have finished paying off their mortgage. These homeowners are allowed to borrow part of the home’s equity as a form of tax-free income. Compared to a regular mortgage where the homeowner pays the lender, the lender pays the homeowner in a reverse mortgage.

Those who choose to get this kind of mortgage don’t have to pay monthly and don’t have to sell the house. That means they can keep on living in the house. However, the loan must be repaid by the time the homeowner sells, moves out of the house permanently, or dies.

One of the most known types of reverse mortgages is called the Home Equity Conversion Mortgage or HECM that the federal government backs.

How Do Reverse Mortgages Work?

There’s still a possibility that qualified homeowners won’t be able to borrow the amount equal to the value of their property even if their mortgage is already paid off. The principal limit, which is the amount the homeowner can borrow, varies depending on how old the youngest borrower or eligible non-borrowing spouse is, the HECM mortgage limit, the current interest rates, and the value of the property.

Older homeowners are likely to get a much higher principal limit. Those whose property is priced higher or those with lower interest rates. The amount may also get higher if the borrower has a variable-rate HECM. Some of the options include:

• Equal monthly payments if at least one borrower lives in the house as their primary residence
• Equal monthly payments for a specified period of months agreed upon ahead of time
• A credit line that can be used until it runs out
• A combination of fixed monthly payments and a credit line for as long as the borrower lives in the house
• A combination of fixed monthly payments and a credit line for a specified length of time

Another thing to know is that you can choose a HECM with a fixed interest rate and get a single disbursement. You’ll get the payment lump sum.

What Can You Use the Reverse Mortgage for?

Reverse mortgage proceeds can be used to supplement retirement income, to cover the expenses of necessary home repairs or medical expenses, and others.

Requirements for Reverse Mortgage

To be eligible for a reverse mortgage, the primary owner of the home has to be 62 years old or older, but what if the spouse is younger than 62? It’s still possible to get a reverse mortgage given that you meet these criteria:

• You should own the home outright or have a single primary line you can borrow against
• Any existing mortgage should be paid off using the reverse mortgage proceeds
• You should live in the house as your primary residence
• You should be updated with your property taxes, insurance, and other legal obligations
• You should participate in a session on consumer information conducted by a HUD-approved counselor
• You need to maintain the property and ensure it’s in excellent condition

Your Reverse Mortgage Lender in Florida!

As you have learned here, a reverse mortgage is unlike any other type of housing loan. While this is not an option for everyone, those who can apply for this should consider getting one, especially if you need the proceeds you can get from it. Of course, it’s best to know more about it, including its pros and cons, the terms, and other considerations you need to factor in before you apply for one.

We are a reputable mortgage company in North Palm Beach, FL, that can provide you with the best mortgage solutions for your needs. Contact us today at (561) 316-6800 to learn how we can help you!