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.