This material is not provided by, nor was it approved by the Department of Housing & Urban Development (HUD) or by the Federal Housing Administration (FHA).
Reverse mortgage products not available in Tennessee and Utah.
Who can Benefit from A Reverse Mortgage
The group of seniors who are most likely to benefit from a reverse mortgage include:
- Those looking to supplement a fixed income retirement.
- Those who need a home equity line of credit(HELOC).
- Seniors who will remain in their home for the long-term.
- Those who are looking to use a reverse mortgage as a financial tool in their retirement plan.
If you fall into any of the above categories or are curious about state-specific information regarding reverse mortgages and the requirements of getting approved, continue reading for more loan information.
How Does a Reverse Mortgage Work?
When you own a home with a traditional mortgage, you gain equity over time as you pay off the loan. What’s equity? Home equity is the difference between what your home is worth, its appraised value, and any debt you have from mortgages against the home. For example, if you own a home that’s worth $500,000 in today’s market, and owe $50,000 on your mortgage, you have a home equity that’s worth $450,000. If you’re like most Americans, this amount of equity makes up much of your net worth, and as you reach retirement age you may wish to tap into this equity to supplement your fixed income.
Although you can sell your home to tap into this equity, selling your home doesn’t make sense if you don’t want to move. And other options, like taking out an equity loan or obtaining an equity line of credit, can be difficult to obtain. For those who don’t want to put their home on the market or deal with the hassle of obtaining an equity loan or equity line of credit, a reverse mortgage is a great alternative.
How Much Can I Get?
According to the National Reverse Mortgage Lender’s Association, there are several factors which determine the amount of funds you’re eligible to receive through a reverse mortgage. Those factors include:
- Age of the youngest borrower or eligible non-borrowing spouse (If there is more than one borrower and no eligible non-borrowing spouse, the age of the youngest borrower is used to determine the amount you can borrow.)
- Appraised value of home (Subject to the national FHA 203b mortgage limit which may change annually)
- Current interest rates
In general, an individual’s borrowing power increases as they age, if their home is more valuable and as interest rates fall. For example, an 80-year-old will be able to borrow more than a 65-year-old if all other factors are equal and this individual would be able to borrow more at a lower interest rate.
Will I Have to Pay Any Reverse Mortgage Fees?
You will have to pay closing costs. These are normally rolled into the loan and the out of pocket fees are very minimal. Most are like those paid on any forward mortgage, and include:
- Origination fees paid to the lender
- A third-party fee
- Upfront mortgage insurance premium(MIP).
Origination fees are government regulated and based on the appraised value of the home. Third-party fees are much smaller in nature and include appraisal, title and inspection fees, among others. MIP is a fee paid directly to the FHA. Over the course of the loan, borrowers are also expected to incur an annual MIP cost on the loan balance and like all other loans interest accrues on the balance.
When Do I Have to Pay Back a Reverse Mortgage?
The borrower is not required to pay back the loan until the home is sold or otherwise vacated. At that time, the loan must be paid back in full. Besides this, the only other obligations the borrower has are to maintain the home, perform any necessary repairs, and stay current on property taxes and insurance premiums. Otherwise, they risk default.
Still have questions about reverse mortgages? Contact a Reverse Mortgage Loan Originator today!
When Does a Reverse Refinance Make Sense?
A HECM to HECM refinance is a simple reset of an existing reverse mortgage where the previous Reverse Mortgage is paid off and a new Reverse Mortgage takes its place. It can be a valuable tool for homeowners whose circumstances have changed significantly since taking out the reverse mortgage. This may include home values rising dramatically giving the homeowner access to additional equity, a need to change the interest rate, or wanting to add another person to the mortgage such as a new spouse or qualifying family member.
Benefits of refinancing a Reverse Mortgage include:
- Access to additional equity gained through appreciation to consolidate debts, establish a line of credit, or pull out cash
- Adding additional borrowers to the Reverse Mortgage
- Making changes to the interest rate such as going from an adjustable to a fixed rate or locking in a lower rate
- Retaining all benefits of previous Reverse Mortgage
- Establishing monthly payments from the bank to supplement a fixed income
- Reduced income qualifying requirements and minimal credit requirements
18 months must have passed prior to refinancing your existing Home Equity Conversion Mortgage (HECM). Other restrictions apply.