What is a Reverse Mortgage – How Does a Reverse Mortgage Work?

February 3, 2016 By Sean Zalmanoff

It’s called a reverse mortgage because, instead of you making payments to the lender, the lender makes payments to you!

With your traditional mortgage, monthly payments are made by you to the lender. A reverse mortgage has the lender paying you. It is a special type of loan that allows the qualifying homeowner to borrow against the equity that is in their home. These monies will not have to be paid back for so long as you live in the home. The loan can be paid back when you sell the house, pass away or move to another permanent residence.

Who Qualify for a Reverse Mortgage?

Not everyone is eligible for a reverse mortgage. There are certain qualifications that the homeowners must meet:

You must be at least 62 years of age.
The home must be your primary residence.
You need to have paid off most, or all, of your traditional mortgage.

Generally, if you still owe money on your traditional mortgage, you will be required to use part of the money from the reverse mortgage to pay it off. Since there are limits on how much you are able to borrow, you may not qualify if you still owe a considerable amount on your traditional mortgage.

Most reverse mortgages are insured by the FHA, through its HECM, or Home Equity Conversion Mortgage. Through this program, you are required to meet with a reverse mortgage specialist to find out how a reverse mortgage works and to discuss how much it will cost and what your options are.

Sean Z knows the specifics of all reverse mortgages and will go over all the details of your options to make sure you get the reverse mortgage that works best for your situation.

How Will I Get My Money From an HECM?

The amount you will be approved for with an HECM depends largely on the amount of equity you have in your home. Basically what that means is they will look at the value of the property versus what you owe on your existing mortgage. The more equity you have, the more money they will be willing to loan you.

To receive your funds, the HECM gives you a number of payments to choose from.

you can opt for a term loan, which are fixed monthly payments for a specified period of time
a tenure, which is also a fixed monthly payment but for as long as you are living in the house
a third option is a line of credit that allows you to draw funds from the loan as you need them for as much or little as you choose until it has been used up.

What you plan on using the proceeds for weighs heavily on how to you decide to be paid. Sean Z can help you go over the options to figure out which one will be most beneficial for your goals.

Reverse Mortgage Pros and Cons

It is important to consider the positive and negative aspects to a reverse mortgage before making a decision. While this is a perfect plan for many St. Louis residents, it may not benefit every candidate.

The funds you receive from your reverse mortgage should not have to be claimed as income on your tax return, and should have no bearing on any federal benefits you may receive such as Medicare or Social Security. Consult your tax adviser about this.
When you tap into your homes equity with a reverse mortgage, you are not signing away ownership. You still retain the title to the house.
Unlike a home equity loan, there are no monthly payments with a reverse mortgage. The terms of the loan are that it will be paid in full when you pass away or sell the home.
Interest is being charged to you from the lender. This means that the amount you owe is actually growing monthly. Since you are not paying that interest through monthly mortgage payments, you will not be able to claim it on your taxes like you can with interest paid on a typical home mortgage until the entire debt has been cleared.
Most reverse mortgages are at a variable rate, not a fixed rate. That means the interest charged on your loan will change as the financial climate does. Depending on how much you borrowed versus the equity of your home, you could end up owing more to the lender than what your home is worth.

Contact a St. Louis Reverse Mortgage Specialist

Ask your Sean Z mortgage expert for more details about which loan will work best for your circumstances. We are committed to making sure that you are able to receive the funding you need, whether for a home in mint condition or one that needs extensive renovations. Call us today at (314) 361-9979 or fill out our online contact form.

5 Ways to Use Your Retirement

February 16, 2015 By Sean Zalmanoff

The equity in your home can contribute significantly to boost your retirement savings and to improve your spending ability.

There are five ways to tap into your home equity; however, each method has its own pros and cons. It is, therefore, essential that you have a complete understanding of each method before you venture further.

Paying Off Your Mortgage

Living in a mortgage-free home after retirement is an ideal situation where you save quite a lot on your monthly bills. The bills that you will have to pay include taxes, insurance costs, and maintenance costs; however, you will be free from a mortgage payment. Having a mortgage-free home can be a big advantage while living on a limited income.

Down Paymentsizing Your House

You may consider selling your home and moving to a smaller and less expensive house. This helps in increasing your retirement savings and also reduces your monthly expenses. Property taxes, insurance, maintenance, and utility bills are directly proportional to the size of the house; moving to a less expensive house reduces these bills as well.

Relocate

When you are working, you may prefer to live near your workplace so that your commute is reduced. The same reason works for parents of school-age children who live near the school their children attend. When you are retired or your children have moved out of your home, the requirement of staying near the workplace or school district does not exist anymore. Now is the time to choose a location close to recreational facilities, suitable medical care, and affordable transportation that will suit retirement life. You may even chose a place close to family or a place with good weather and scenery.

Reverse Mortgage

A reverse mortgage is available for homeowners who are 62 years of age and older. A reverse mortgage allows a homeowner to receive a payment against the value of their house while they continue to live in the same house. A reverse mortgage payout can be received as a lump sum amount, monthly payments for a certain duration, or as a line of credit. The downside is that there are expenses attached with a reverse mortgage such as an origination fee, mortgage insurance, and service charges.

Become a Renter

When you become a renter after selling your house, you may have the advantage of increasing your retirement savings. As a renter you can always call your landlord for essential and emergency repairs. You will also save yourself the trouble of household chores like mowing the grass or shoveling the snow.

The mortgage team at Sean Z Mortgage can help you review your options to decide which one will be the most beneficial for your goals and needs. Call us today at (314) 361-9979.

Pros and Cons of a Reverse Mortgage

January 12, 2015 By Sean Zalmanoff

A reverse mortgage is a financial product that allows a homeowner to convert home equity into cash.

A reverse mortgage is an option available to homeowners who are at least 62 years old. A reverse mortgage offers them a good way to finance their retirement. They can use this money to cover healthcare expenses, pay for home improvement, or pay off an existing mortgage. A reverse mortgage provides a line of credit or fixed monthly payments without the need to repay a loan each month. However, before choosing this option, it is important to understand the pros and cons. What can a reverse mortgage do for you?

How a Reverse Mortgage Works

In a traditional mortgage, you borrow money from a lender and repay it in monthly payments while you gradually build up equity in your home. On the other hand, in a reverse mortgage, a lender pays you a monthly sum and gradually purchases the equity in your home. You retain the title to the property and it acts as a security for the loan. The loan is repaid when the owner passes away, sells the home, or the home is no longer the primary residence.

Pros of a Reverse Mortgage

You choose how you receive the cash, for example, a regular monthly installment, a single lump sum, a line of credit, or a combination of any of these methods.
Irrespective of how you receive the cash, you do not make payments as long as you live in the home as your principal residence.
There is no minimum income to qualify.
According to the Federal Trade Commission, if you receive more cash than what your home is actually worth, you will not owe anything more than the value of your home.
Cash advances are non-taxable.
You remain the owner of the home.
Cash advances have no affect on Medicare or social security benefits.
After lender fees are paid and the home is sold, the owner receives any equity left in the home.

Cons of a Reverse Mortgage

You need to be 62 years or older more to qualify.
You must go through compulsory mortgage counseling and you will have to pay for it.
Closing costs and loan origination fees can be quite high.
You may have to pay monthly servicing fees for the term of the loan.
Reverse mortgages are usually variable interest rate loans.
The debt increases with time as interest is added to the balance.
There are limits on the amount you can borrow during the first year.
There are limits on the mortgage you can qualify for.
If you fail to pay homeowner’s insurance, taxes, or any other expenses, the loan can become due.
With a reverse mortgage, you lose the equity in your home and you are left with fewer assets.

The decision on whether you should apply for a reverse mortgage should be made after considering the pros and cons carefully. The Sean Z Mortgage team can help you weigh all the factors before committing to a reverse mortgage. If the terms of a reverse mortgage does not fit with your needs, Sean Zalmanoff can help you with other options. Call Sean Z Mortgage at (314) 361-9979.

Five Alternatives to a Reverse Mortgage

November 3, 2014 By Sean Zalmanoff

What mortgage options are available in addition to a reverse mortgage?

Homeowners who are at least 62 years of age can convert home equity into cash through a reverse mortgage. This allows homeowners to use the equity from their home to obtain a credit line or a fixed monthly payout. Repayment starts once the person moves out, sells the home, is delinquent in paying insurance or taxes, or passes away. Repayment is also deferred unless the house is in bad condition. The house is sold and excess funds after repayment go to the homeowner or the heirs. Are there options in addition to a reverse mortgage to help generate income for older homeowners? The following are alternatives homeowners can use instead of a reverse mortgage.

Refinance the Existing Mortgage

An existing mortgage can be refinanced to reduce the monthly payment and interest rate. Refinancing may also help in building equity for the home quickly and allows the homeowner to retain the house as an asset.

Get a Home Equity Loan

Homeowners can borrow money using the equity on their home through a home equity loan or a second mortgage. The interest is normally tax-deductible for loans of up to $100,000. Since these are fixed-rate loans, the interest may be higher compared to other types of loans. Refinancing allows homeowners to retain the house as an asset.

A Home Equity Line of Credit (HELOC)

A home equity line of credit allows homeowners to borrow an amount to the approved credit limit. Payments are limited to the amount withdrawn by the homeowner. HELOCs can be adjusted and monthly payments are determined by fluctuating interest rates. Interest is normally tax-deductible for loans of up to $100,000. The home continues to be an asset to the homeowner.

Sell the House

The house can be sold so the homeowner can access the equity it created. This is a good option for people who find their existing home to be too big or costly to maintain. The proceeds can be used for purchasing a smaller house and the extra money can be invested or placed in the bank.

Sell the House to Children

Homeowners can sell the house to their children and the proceeds can be used to rent it back from the children. The children also benefit as they receive rental income. A private reverse mortgage can also be used so fees and interest rates stay in the family. The children make the payments for the house and they can recover their investment when they sell the house. However, this situation has some effects on tax and estate planning, and you would require the help of a tax specialist or lawyer.

St. Louis Mortgage Professionals

Homeowners who are short of cash can use a reverse mortgage to generate income. It may be a good choice for people who have a good amount of home equity, but do not earn enough for their retirement.

Call Sean Z Mortgage at (314) 361-9979 to speak with a mortgage specialist.

What Can a Reverse Mortgage Do For You?

October 14, 2014 By Sean Zalmanoff

Take advantage of all of the hard work you have put into your home.

A reverse mortgage allows you to tap into the equity of the home you have worked hard for and use the money for repairs, medical expenses, or even a trip around the world.

What Is a Reverse Mortgage?

With a typical mortgage, monthly payments are made to the lender to pay the loan back. With a reverse mortgage there is no obligation to pay the money back until you no longer live in the home. The money you receive is tax free and there are typically no income restrictions. The amount you receive is entirely dependent on the value of the property. A Home Equity Conversion Mortgage (HECM) is part of a federally insured reverse mortgage program that is backed by the U.S. Department of Housing and Urban Development (HUD). These loans are widely available and have no income or medical requirements.

Qualifying For a Reverse Mortgage

To qualify you will first be asked to meet with a financial counselor from an independently operated, yet government approved, housing counseling agency. The cost of the loan and its financial implications will be explained to you in detail. Follow this link for FAQ’s about reverse mortgages. You will also be shown other types of mortgage products to help you understand the differences in structure and cost. If you choose an HECM mortgage, you will be given four options to choose from.

Term loan – This allows you a fixed cash amount for a specific amount of time.
Tenure loan – Fixed monthly cash advances for as long as you are living in the home.
Line of credit – This gives you more flexibility as you can withdraw the amount you want anytime you want. This is a good option if you plan on using the loan to fund a trip or make renovations on your home.
You may also choose a combination of the two.

How to Use the Funds From a Reverse Mortgage

No matter which form of payment you decide on, the money is yours to spend however you see fit. The amount you receive is based on how much your home is worth minus any existing mortgages you may still be paying on it. The amount you receive is not taxable and will have no bearing on any aid you receive, such as social security or medicare. The title to the house remains in your name and there is no obligation to make any repayments. The full amount you borrowed will be paid once you no longer use the home as your primary residence.

A mortgage representative from Sean Z Mortgage can help you go over all of the points to make sure that this is the best option in your circumstance. Many Missouri homeowners use this as a way to supplement their income after retirement in order to continue with the quality of life they are accustomed to. You have spent many years working on building equity into your home. Now is the time to let your hard work pay off for you!

Call the Sean Z Mortgage Team today at (314) 361-9979!

Is It Time You Reversed Your Mortgage?

July 16, 2014 By Sean Zalmanoff

A reverse mortgage can be a viable option for seniors who would like to supplement their social security income.

Is a reverse mortgage right for your circumstances?

Reputable lenders, like Sean Z Mortgage, will make sure that you understand the benefits and risks of a reverse mortgage, and help you decide if it is right for your situation, before you sign on for one.

How Does a Reverse Mortgage Work?

As a responsible home owner, you have been making timely mortgage payments on your house for years, possibly decades. This has allowed you to build up equity in your home. Equity simply means that you now have value in the property above what is owed on it. A reverse mortgage allows you to tap into that equity to finance other things.

At first glance that seems like a home equity loan, and in some ways it is similar. The major difference though, is that as a senior, you are receiving monthly payments on that equity instead of making them for the loan. With a reverse mortgage, the borrower has the option of receiving one large lump sum of cash, monthly payments for so long as the borrower is living at the address, a line of credit or any combination of the three. Many seniors like to do a small lump sum cash advance to finance a big expense and then take the rest as monthly payments to supplement their income.

Who Qualifies For a Reverse Mortgage?

Any homeowner must be at least 62 years old to qualify for a reverse mortgage. In most cases, credit scores are not taken into consideration. What does make a difference is the amount of equity in the home and its condition.

How Much Can Be Borrowed?

The borrower’s age and the equity in the property impact the amount that can be borrowed. The loan must first be used to pay off the balance of any mortgage or lien on the property. What is left after that is the available cash. Both Fannie Mae and the U.S. Department of Housing and Urban Development offer special reverse mortgage backing to seniors.

What Can the Money Be Used For?

Typically, how the money obtained by the homeowner with a reverse mortgage is spent is at their discretion. Many will use it to help cover unexpected medical bills and treatments, while others may use it to finance a special vacation or other large purpose. The vast majority of seniors though are using the monthly payment option and using the funds as a second source of income to help pay monthly expenses.

When Do I Have to Start Paying the Loan Back?

A reverse mortgage is paid back when the home is sold. Until that time, you still retain ownership and hold the deed. Talk with a lending expert like Sean Z Mortgage to help you decide if a reverse mortgage will work in your circumstances. This is a great way for a senior citizen to be rewarded for all the years spent keeping up with their home and the mortgage payments. Call Sean Z Mortgage at (314) 361-9979 for more information.

Photo credit: The Marmot via Flickr