Guide to Reverse Mortgages:

Understanding Reverse Mortgages

A reverse mortgage is a financial product designed for homeowners, typically aged 62 or older, to convert a portion of their home equity into cash without selling their home. Unlike traditional mortgages, where the borrower makes monthly payments to the lender, in a reverse mortgage, the lender makes payments to the borrower. The loan does not need to be repaid until the borrower sells the home, moves out permanently, or passes away.

How Reverse Mortgages Work

Reverse mortgages allow homeowners to access their home equity in several ways:

• As a lump sum payment
• As a line of credit
• Through fixed monthly payments
• As a combination of these options

The borrower retains ownership of the home and is still responsible for paying property taxes, insurance, and maintenance costs. Interest accrues on the loan balance over time, which means the loan balance increases.

Who Reverse Mortgages Are For

Reverse mortgages may be suitable for homeowners who:

• Are aged 62 or older
• Have significant equity in their homes
• Need additional income in retirement
• Want to fund healthcare expenses or home improvements

However, it’s important to carefully consider the implications of a reverse mortgage, including potential costs and impact on inheritance.

Terms of Reverse Mortgages

Key terms associated with reverse mortgages include:

• Loan Balance: The amount owed on the reverse mortgage, including principal and accrued interest.
• Interest Rate: The rate at which interest accrues on the loan balance.
• Origination Fee: A fee charged by the lender to process the reverse mortgage application.
• Mortgage Insurance Premium (MIP): Insurance that protects the lender in case the loan balance exceeds the home’s value.
• Closing Costs: Fees associated with closing the reverse mortgage, including appraisal, title search, and attorney fees.

Qualifying for a Reverse Mortgage

To qualify for a reverse mortgage, borrowers typically must:

• Be aged 62 or older
• Own the home outright or have a low mortgage balance that can be paid off with the reverse mortgage
• Occupy the home as their primary residence
• Participate in a counseling session with a HUD-approved counselor to ensure they understand the terms and implications of the reverse mortgage

Credit score and income are generally not considered when qualifying for a reverse mortgage, as the loan is secured by the home’s equity.

Before proceeding with a reverse mortgage, borrowers should carefully evaluate their financial situation, consider alternative options, and seek advice from a financial advisor or housing counselor.

Learn more about Reverse Mortgage options today!