Is A Reverse Mortgage Right For You?

Is A Reverse Mortgage Right For YouImagine the bank depositing monthly premiums into your account instead of you writing a mortgage check. That’s basically how a reverse mortgage works.  

Traditional mortgages involve people paying down the interest and principal on a home loan. The goal is generally to pay off the property and cruise through retirement without that monthly installment eating at your budget. With your home paid off, those previously allotted finances can be used to relax and enjoy your retirement to the fullest. That’s the best-case scenario anyway.

But financial life has changed significantly over the past half-century. The formula for economic security has been chipped away by rising health care costs, tax increases, and other complications. Working hard and paying off your family home may no longer equal financial flexibility later in life. The valued elders in everyday American communities may require enhanced resources and the reverse mortgage has been a viable option for many.

How A Reverse Mortgage Works

The product was created to allow homeowners who are 62 and older to convert their home equity into cash payments. Rather than you paying the bank, the roles are reversed and the lender basically buys out your equity by paying you in monthly installments.  

Homeowners are required to stay up to date on things such as local property taxes, association fees and insurance. The lender receives reimbursement for the equity purchase when the home sells at the conclusion of the agreement. What was once money going out each much makes a full swing to cash coming into the home. That can be a remarkable financial boon.

Types Of Reverse Mortgages

The reverse mortgage products on the market can be broken down into three basic types. The overwhelming majority are federally-insured home equity conversion mortgages.

Industry insiders often refer to these products as HECMs and they are supported by the U.S. Department of Housing and Urban Development. They reportedly comprise upwards of 90 percent of reverse mortgages. Other types include private loans and those with a single purpose. For example, a qualified homeowner may secure a reverse mortgage to make a necessary home improvement. State agencies and nonprofits often back these to help low-income families through adversity.

Benefits Of A Reverse Mortgage

When people discover that their pension, 401(k) and savings won’t necessarily carry them through a comfortable retirement, selling the family home and downsizing emerges as one of the solutions. But reverse mortgages can offer an alternative by providing the following benefits.

  • Steady Home Life: Reverse mortgages allow homeowners to stay in their home and receive payments on the equity rather than sell, move and squirrel away the profit. The key benefit is remaining in the family home that is rich with memories.
  • Relieve Burden: The increased costs of taxes, insurance, utilities and other living expenses may eat away at the financial relief gained by paying off a home. Reverse mortgages infuse elders’ budgets and help overcome financial shortfalls.
  • Eliminate Mortgage: For those who still have a monthly mortgage payment, a reverse mortgage can pay off the outstanding balance. The product allows homeowners to subtract money owed and still receive monthly installments. That can be a substantial financial swing.

Reverse mortgages can be an excellent tool to improve your quality of life during retirement. However, it’s important to have a realistic long-term financial plan in place.

If you are considering a reverse mortgage, speak with an experienced mortgage professional about options that best meet your needs.

Equity Loan and HELOC vs. Reverse Mortgage – What’s the Difference?

Equity Loan and HELOC vs. Reverse Mortgage - What's the Difference?There are times in our lives when the idea of freeing up cash becomes desirable or necessary. Near retirement, this is a common consideration. The typical financial tool that many retirees want to know about is a reverse mortgage, but it’s not the only equity tool available.

Equity Loan

The equity loan, or second mortgage, is essentially an additional fixed interest loan attached to the home. However, unlike the first mortgage which was used to buy the home, the second mortgage can be used for other purposes such as putting in a pool, redesigning the home to make it more accessible, or to pay for a dream vacation. This kind of loan can be set up for a long pay period which reduces its monthly financial impact. The fact that it is attached to the home can result in a very low interest rate for the borrower. However, to qualify, one does have to have the income or assets to pay it back, which may be challenging for those on a fixed income.

HELOC

The Home Equity Line of Credit, or HELOC, is similar to the equity loan, but it is not a fixed loan amount. Instead, the HELOC works more like a credit card. The homeowner makes charges against the line of credit, develops a balance and then pays it off. The homeowner retains the ability to borrow against it again, as needed. Much like the equity loan, the HELOC is attached to the home for collateral, which can result in a lower interest rate, but the borrower is not under obligation to the entire loan value at once. The HELOC can result in a lower monthly payment and can be used multiple times. Most HELOCs have a variable interest rate. 

Reverse Mortgage

A reverse mortgage is an option for borrowers age 62 or older who have a sizable amount of equity in their home. This loan takes equity out of an owned home and converts it into cash for the borrower. A key benefit, compared to other tools, is that there is no monthly payment. Many times, the reverse mortgage loan is used to pay off an existing mortgage to eliminate that monthly payment as well. The homeowner is able to stay in their home and is not obligated for repayment until the home is no longer the primary residence or he or she passes away. The loan principal and accruing interest are paid back at the end of the loan life with a balloon payment or by transferring over the home itself to satisfy the debt. The loan is never more than the value of the home at the time of origination, so in most cases the home value will have risen and is more than enough to repay the loan. Many seniors have found the reverse mortgage to be a powerful way to boost monthly cash flow in their lives and make their later years more comfortable.

The home equity loan, HELOC and the reverse mortgage are three equity borrowing tools that can effectively give a homeowner greater cash flexibility. Each have varied requirements and benefits as well as certain risks to be aware of. Contact your trusted mortgage professional who can answer your questions and help you determine the very best option for you.

Nearing Retirement? Three Reasons Why You Might Consider a ‘Reverse Mortgage’

Nearing Retirement? Three Reasons Why You Might Consider a 'Reverse Mortgage'If you are nearing retirement, a reverse mortgage might be right for you. This type of mortgage essentially allows you to turn your home equity into cash. If you find yourself with little money, a reverse mortgage could be the perfect solution, and here’s why.

No Worries About Monthly Payments

After taking on a mortgage, there are many costs that you have to worry about. One of these problems is mortgage insurance premiums. Add interest and fees from lender service providers to the mix, and you’ve got yourself many costs.

All of these fees can create tremendous headaches, as a large chunk of the loan amount goes into covering these costs.

When you undertake a reverse mortgage, you don’t have to worry about any of that. The loan is paid back with home equity, not ongoing cash flow, so monthly payments aren’t a worry.

Your Income Won’t Affect Your Eligibility, And The Income You’ll Get Won’t Create Problems

If the reason you’re hoping to get a reverse mortgage is your low income, the last thing you want is that income to be the deciding factor. With this type of loan, it’s not an issue. That’s because the thing that determines eligibility is your house’s value.

In fact, the income you’ll be getting from this loan is not taxable, which means you’ll be able to keep it in full. Plus, any benefits you get from Medicare will not be affected, and neither will your Social Security.

As such, what you’ll be getting is a loan that doesn’t take into account your current income. Rather, it adds on to it, without creating any issues for you. Plus, you’ll be able to get the money in several different ways, which means you’re in control.

Lastly, the money you get is fully yours. That means that you can use it for anything you want, whether that means you’ll be paying off other loans, or simply funding your day-to-day needs.

You Won’t Be Taken Away From Your Home

Your house is yours because it feels that way. It’s the place in which you’ve invested money and effort. It’s also the place where many loved memories were created, and where they’ll keep on being created.

One of the hardest things for the elderly is being removed from their loved homes and placed into care. They have to leave the place they’ve grown to love. Worse than that, they’re thrown into a world they don’t know.

With a reverse mortgage, this doesn’t need to happen. With this type of loan, you get additional income, and you get to stay in your own house.

Not only that, but you’re also keeping the title to that place until you move, pass away, or reach the end of the loan’s term. Your home will stay yours, both effectively and in the documents.

There are many more reasons why a reverse mortgage is a great idea. However, the fact that you’re in complete control of the income you’ll be getting is one of the most important things.

If you’d like to learn more about reverse mortgages, be sure to contact your mortgage professional.

Reverse Mortgages : Pros And Cons

http://www.msnbc.msn.com/id/32545640

Despite several big-name banks pulling the product from their respective home loan offerings, reverse mortgages remain a popular mortgage choice among homeowners aged 62 or over.

A reverse mortgage is exactly what it sounds like — a mortgage in reverse. Rather than borrow a fixed amount of money then pay that loan balance down to zero as with a “forward” mortgage, a reverse mortgage starts at a given loan balance and works its way up as scheduled payments are added to the existing loan balance.

This 4-minute piece from NBC’s The Today Show highlights a few pros and cons of reverse mortgages, and the reasons why you may want to consider one, including :

  • No mortgage payments are ever due on your home
  • There is no credit check required for a reverse mortgage
  • There is no income requirement to qualify for a reverse mortgage

There are some basic qualification standards for the reverse mortgage program including a requirement that all borrowers on title must be 62 years of age or older; and that the subject property be a primary residence. Loan fees can also be higher than with a conventional-type mortgage.

If you meet the qualification standards, though, with a reverse mortgage, you have flexibility in how your home equity is distributed to you. You can receive a lump-sum payment, elect for monthly installments over time, create a line of credit, or a combination of all three. 

Like all mortgages, reverse mortgages are complex instruments. That’s one reason why all reverse mortgage borrowers are required to attend counseling — the government wants you to be certain that you understand the nuances of the reverse mortgage program.

Your lender will want you to understand the program, too.