You've probably heard a little something here or there about reverse mortgages, but if you're like most Americans, you probably don't know too much about them. The reverse mortgage is a great financial tool for retirement because it offers the ability to eliminate mortgage payments and provide extra cash to pay off other bills, do home repairs, or provide extra income for retirement.
What is a Reverse Mortgage?
The vast majority of reverse mortgages written in the United States are Home Equity Conversion Mortgages, or HECMs, which were created by Congress and signed into law by President Reagan in 1988. The HECM reverse mortgage is insured and regulated by the Federal Housing Administration (FHA).
If you know a neighbor, friend, or relative who took out a reverse mortgage in recent years, it's a good bet it was a HECM.
A reverse mortgage is a home loan, but it's better to think of it as a retirement planning tool because it creates a means to convert home equity - which is often the biggest source of wealth a retiree has - into cash that can be for extra income, paying bills, and getting rid of house payments.
How Does a Reverse Mortgage Work?
A HECM works exactly opposite a regular mortgage. Instead of the loan balance gradually going down over time as payments are made, with a HECM, payments are gone altogether and accrued finance charges are added to the loan balance over time. This is how home equity is gradually converted over time into cash that can be used for whatever you need.
With a reverse mortgage, you can eliminate monthly payments, borrow a lump sum, take monthly distributions for life, or open a credit line that you can tap as needed.
The following are a few important points about the HECM reverse mortgage:
1) Monthly payments are not required. 2) You are free to live in the home as long as you like regardless of how much the loan balance is. 3) The loan does not have to be paid back until the last borrower no longer occupies the house. 4) You (or your estate) can never owe more than the value of the home. 5) The HECM is regulated and insured by the Federal Housing Administration. 6) Proceeds are usually non-taxable. 7) You keep ownership of your property and are free to pass it on to your heirs. 8) No prepayment penalty. The loan can be repaid at any time.
Your responsibilities are to maintain the home, live in it, and keep up on your homeowners insurance and property taxes. As long as you do these things, the loan is not due and payable until the last borrower moves out or passes away.
The following are the few HECM eligibility requirements. You must:
1) Be 62 years of age or older. 2) Live in the home. 3) Not be delinquent on any federal debt (like income taxes).
There are no income or credit requirements. You can have lousy credit and limited income and still be able to qualify for a reverse mortgage as long as you meet the basic eligibility requirements above.
A Great Mortgage Option For the Right Borrower
Again, a HECM is a fantastic and flexible retirement planning tool because it can be used to get rid of your mortgage payment, pay off other bills, or provide an extra source of income. It's not necessarily right for everybody, but for the right borrower, it's a great mortgage option.
What is a Reverse Mortgage?
The vast majority of reverse mortgages written in the United States are Home Equity Conversion Mortgages, or HECMs, which were created by Congress and signed into law by President Reagan in 1988. The HECM reverse mortgage is insured and regulated by the Federal Housing Administration (FHA).
If you know a neighbor, friend, or relative who took out a reverse mortgage in recent years, it's a good bet it was a HECM.
A reverse mortgage is a home loan, but it's better to think of it as a retirement planning tool because it creates a means to convert home equity - which is often the biggest source of wealth a retiree has - into cash that can be for extra income, paying bills, and getting rid of house payments.
How Does a Reverse Mortgage Work?
A HECM works exactly opposite a regular mortgage. Instead of the loan balance gradually going down over time as payments are made, with a HECM, payments are gone altogether and accrued finance charges are added to the loan balance over time. This is how home equity is gradually converted over time into cash that can be used for whatever you need.
With a reverse mortgage, you can eliminate monthly payments, borrow a lump sum, take monthly distributions for life, or open a credit line that you can tap as needed.
The following are a few important points about the HECM reverse mortgage:
1) Monthly payments are not required. 2) You are free to live in the home as long as you like regardless of how much the loan balance is. 3) The loan does not have to be paid back until the last borrower no longer occupies the house. 4) You (or your estate) can never owe more than the value of the home. 5) The HECM is regulated and insured by the Federal Housing Administration. 6) Proceeds are usually non-taxable. 7) You keep ownership of your property and are free to pass it on to your heirs. 8) No prepayment penalty. The loan can be repaid at any time.
Your responsibilities are to maintain the home, live in it, and keep up on your homeowners insurance and property taxes. As long as you do these things, the loan is not due and payable until the last borrower moves out or passes away.
The following are the few HECM eligibility requirements. You must:
1) Be 62 years of age or older. 2) Live in the home. 3) Not be delinquent on any federal debt (like income taxes).
There are no income or credit requirements. You can have lousy credit and limited income and still be able to qualify for a reverse mortgage as long as you meet the basic eligibility requirements above.
A Great Mortgage Option For the Right Borrower
Again, a HECM is a fantastic and flexible retirement planning tool because it can be used to get rid of your mortgage payment, pay off other bills, or provide an extra source of income. It's not necessarily right for everybody, but for the right borrower, it's a great mortgage option.
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