How Reverse Mortgages Work
How Reverse Mortgages Work
More often than not, seniors don't have the sufficient financial resources to support themselves in lieu of medical expenses, Social Security contributions, home repairs and maintenance.
What they often have is an expensive home that doesn't really provide them the necessary benefits to sustain their way of living. The option to loan money using the home's equity is there, but the imposition of the monthly interest for borrowing money can only exacerbate their financial difficulties. Good thing there's another option called reverse mortgages. So what is a reverse mortgage? Perhaps it's better explained as a process that gives you the luxury to convert your equity into cash, but this time, without the hassle of paying for monthly installments. This is a promising program for many seniors in dire need of steady cash inflow. To prove that point, you only need to look at the statistics showing the staggering increase of reverse mortgages from 18,000 in 2003 to approximately 107,000 in 2007 (source: U.S. Department of Housing and Urban Development). Also adding to the advantages of reverse mortgages over other loaning programs is having the option to receive the payment in three forms, which are as follows:
*Single lump sum of payment
*Regular monthly payment
*Credit line account
There are also three types of reverse mortgages. Each of them has different terms and requirements. You can choose which type best applies to your needs and capacity.
1. Single-Purpose Reverse Mortgages. These mortgages are mostly offered by non-profit groups, including the local and state government. It's the cheapest mortgage to apply for. The drawback here is that the homeowners must qualify with certain income restrictions.
2. Proprietary Reverse Mortgages. This type is tied with private companies, and has fewer qualifying restrictions. The borrower, however, will have to pay upfront fees.
3. Home Equity Conversion Mortgages (HECMs). HECMS are widely popular since it is the only type of mortgage that guarantees the promises of the loan are delivered. The local government supports this type of mortgage as well.
The minimum age required to apply for a reverse mortgage is 62 years old. You should also be the principal occupant of the home. Furthermore, the minimal mortgage balance can be paid off with proceeds from the loan. The amount given to you monthly will depend on several factors. These factors are age, home location, and the home's price value. In simple math, every amount that you are given reduces the value of your home's equity. And it is also important to point out that the total loan amount cannot exceed the value of your home's equity. The calculations can be confusing, especially for the old timers. But don't worry your age away, for you can find a slew of reverse mortgage calculators on the Internet. Just type the keywords "reverse mortgage calculator" and I promise you that you'll be bombarded by links that can provide you with these useful on-line calculators. There are risks involved in reverse mortgages, so you would do well to get the services of a professional reverse mortgage counselor. If you get the facts straight and have everything in order, your senior years just might turn out to be the best years of your life. One of the options to increase financial support when your reach retirement age is reverse mortgage. A reverse mortgage is also known as Home Equity Conversion Mortgage (HECM) that allows you to convert the value of your house to cash or funds that can be immediately available. This is a great addition to the other retirement alternatives for homeowners who would like to expand their funds for big-ticket expenses such as tours and home improvements.
A reverse mortgage loan does not need to be entirely for expensive activities. Most borrowers use the loan to fund their daily allowance to allow themselves to live more comfortably. It is an effective supplement to social security and Medicare benefits. Some people have the notion that the reverse mortgage would affect their government-mandated benefits such as health care and social security. The fact is it does not affect the status of the membership you have with social security but it has minimum impact on Medicare. The amount of loan allotment you receive in a month will have an inversely proportional effect on your Medicare benefits. If the health care department is able to detect that you are receiving a large amount of money each month, then they may decrease your remuneration, or they may decline your Medicare application to accommodate other members. What you can do though, to avoid this inconvenience is to avoid keeping the proceeds of your loan in the bank because it will be misconstrued as an asset. Remember that the point in taking out a reverse mortgage is to finance expenses, and it is expected that the monthly amortization be spent in the same calendar month. If the amount of money is spent immediately, it will not affect your Medicare standing.
*Single lump sum of payment
*Regular monthly payment
*Credit line account
There are also three types of reverse mortgages. Each of them has different terms and requirements. You can choose which type best applies to your needs and capacity.
1. Single-Purpose Reverse Mortgages. These mortgages are mostly offered by non-profit groups, including the local and state government. It's the cheapest mortgage to apply for. The drawback here is that the homeowners must qualify with certain income restrictions.
2. Proprietary Reverse Mortgages. This type is tied with private companies, and has fewer qualifying restrictions. The borrower, however, will have to pay upfront fees.
3. Home Equity Conversion Mortgages (HECMs). HECMS are widely popular since it is the only type of mortgage that guarantees the promises of the loan are delivered. The local government supports this type of mortgage as well.
The minimum age required to apply for a reverse mortgage is 62 years old. You should also be the principal occupant of the home. Furthermore, the minimal mortgage balance can be paid off with proceeds from the loan. The amount given to you monthly will depend on several factors. These factors are age, home location, and the home's price value. In simple math, every amount that you are given reduces the value of your home's equity. And it is also important to point out that the total loan amount cannot exceed the value of your home's equity. The calculations can be confusing, especially for the old timers. But don't worry your age away, for you can find a slew of reverse mortgage calculators on the Internet. Just type the keywords "reverse mortgage calculator" and I promise you that you'll be bombarded by links that can provide you with these useful on-line calculators. There are risks involved in reverse mortgages, so you would do well to get the services of a professional reverse mortgage counselor. If you get the facts straight and have everything in order, your senior years just might turn out to be the best years of your life. One of the options to increase financial support when your reach retirement age is reverse mortgage. A reverse mortgage is also known as Home Equity Conversion Mortgage (HECM) that allows you to convert the value of your house to cash or funds that can be immediately available. This is a great addition to the other retirement alternatives for homeowners who would like to expand their funds for big-ticket expenses such as tours and home improvements.
A reverse mortgage loan does not need to be entirely for expensive activities. Most borrowers use the loan to fund their daily allowance to allow themselves to live more comfortably. It is an effective supplement to social security and Medicare benefits. Some people have the notion that the reverse mortgage would affect their government-mandated benefits such as health care and social security. The fact is it does not affect the status of the membership you have with social security but it has minimum impact on Medicare. The amount of loan allotment you receive in a month will have an inversely proportional effect on your Medicare benefits. If the health care department is able to detect that you are receiving a large amount of money each month, then they may decrease your remuneration, or they may decline your Medicare application to accommodate other members. What you can do though, to avoid this inconvenience is to avoid keeping the proceeds of your loan in the bank because it will be misconstrued as an asset. Remember that the point in taking out a reverse mortgage is to finance expenses, and it is expected that the monthly amortization be spent in the same calendar month. If the amount of money is spent immediately, it will not affect your Medicare standing.
If you plan to take out a reverse mortgage while there is an existing mortgage in your name, the reverse mortgage must be the primary loan. If the eligible amount of your home equity is sufficient to cover the outstanding loan, then you will be able to proceed with the reverse mortgage. It is also useful to note that the difference between your outstanding existing loan and the reverse mortgage proceeds must leave you with enough funds, otherwise, it can cost you a lot more. Because even then, your whole reverse mortgage funds would have been used up. You will no longer receive monthly payments and if the left over amount is calculated to be very little, you may find yourself in a difficult financial fix in the future. It is also possible to use the entire loan amount to pay off the existing debt and if insufficient, you may use some of your personal savings to add up to it. Although it is possible, it is advised not to rely on reverse mortgage to pay off outstanding debts if you can find other sources of funds such as retirement accounts and investments. Reverse mortgage will be so much more effective for actual expenses rather than debt payment because of the ceiling of the amount you can borrow.
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