What is a Reverse Mortgage?
A Reverse Mortgage is defined as a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. The loan is repaid after the borrower moves out or dies. It is also known as a home equity conversion mortgage, or HECM. Reverse mortgages are often considered a last-resort source of income, but they have become a great planning tool for cash-strapped homeowners.
How do you know if you qualify? To obtain a Reverse Mortgage, you are required to be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HUD Approved counselor prior to obtaining the loan. You can find a HECM counselor online or by phoning (800) 569-4287.
Obtaining a Reverse Mortgage sounds daunting. So, what are the benefits?
- You remain the owner of your home. A common misconception of reverse mortgages is that the lender takes ownership of your home. This is false. You continue to maintain ownership of your home, as long as you comply with the terms of the loan and pay your taxes and insurance.
- There are no monthly mortgage payments required from you. One of the most attractive benefits of reverse mortgages is that payments are made TO you, as long as you live in your home. This is quite different from a traditional forward mortgage where you must pay funds in a monthly amount. With reverse mortgages, you receive funds. The loan is repaid when you sell your home, move to another primary residence, or when the last borrower leaves the home.
- You are protected if the housing market declines. The reverse mortgage loan is insured by the federal government. With federal insurance comes greater security. If the loan ends up amounting to more than the value of the home when sold, government insurance will cover the difference. This means that the loan will be paid in full using only the proceeds your home sells for, and no more.
- You may choose from several options of disbursement. Each individual senior has different needs. Thus, there are different disbursement options to cover different needs. This includes the choice to receive funds in a full or partial sum, a line of credit, monthly payments, or a combination of any of these.
- Social Security & Medicare benefits are unaffected. Government benefit programs that do not test financial resources, such as Social Security and Medicare, are not affected by reverse mortgages. Reverse mortgages are considered loan proceeds and not income. Do note, however, that income awards such as Medicaid and Supplemental Security Income may be affected.
These are only a few of the many reverse mortgage benefits. For more information, please visit GMFS Mortgage Reverse Mortgage page and give us a call!