The term reverse mortgage is now everywhere. It often appears in commercials or in Internet searches. But you may not understand what it is.
In short, it is a unique home loan that allows homeowners to convert the equity of some of their homes into cash. The equity acquired by the homeowner through years of payment at home can now be returned to them in installments. In the case of a typical mortgage, the borrower pays the lender, reduces the amount owed for each payment, and establishes an equity in the borrower's house. In a reverse mortgage, the borrower receives payment from the lender, and each payment increases the loan balance and reduces the equity amount.
Who initiated these loans?
Most of these loans come from the Federal Housing Administration [FHA] and are known as home equity conversion mortgages or HECM. HECM is guaranteed by FHA, so the borrower does not have to worry about not receiving payment from the lender.
Who is eligible for these loans?
To qualify for this type of loan, the homeowner must be at least 62 years of age and have a large stake in the home. In addition, in order to obtain HECM, the homeowner must have their own house completely, or the balance they owe on the house must be low enough to be paid at the end of the proceeds of the reverse loan. In addition, the borrower must live at home and be able to pay for recurring expenses related to the property, including taxes and insurance. Finally, the borrower must obtain information from the HECM consultant before obtaining the loan. Applicants' homes must be single-family homes, HUD-accredited apartments or manufacturing houses that meet FHA requirements, or must be 2 to 4 unit houses if the borrower lives in one of the units.
How much can you borrow?
The amount a homeowner can borrow through a reverse mortgage depends on their age, home value and loan interest rate. In most cases, older homeowners can borrow more money, the more value the home has or the more homeowners own, the more the homeowner can borrow. Lower loan interest rates also increase the homeowner's ability to borrow.
How do I receive my funds?
With HECM, the borrower can choose how to receive the payment. The borrower can choose to receive a one-time payment at the end of the loan, or the borrower can obtain a credit line. This line of credit can be chosen by the borrower and grows over time. The borrower can also choose to receive payments in the form of a monthly annuity. The monthly annuity of the term is the third time the borrower receives their monthly payment at home. The term monthly annuity is the monthly payment received by the borrower for the period of time they have chosen. The borrower can also choose to combine these options, such as choosing to receive a monthly annuity, but can also collect some cash at checkout. The borrower can also switch from one option to another by paying a small fee.
Reverse mortgages can be a useful source of income for older people. By studying the pros and cons of this type of loan, the homeowner can determine if it is suitable for their financial situation.
Orignal From: Understand the reverse mortgage program
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