Reverse Mortgages

What is a Reverse Mortgage?

If we think about a typical mortgage loan in the simplest of terms, a loan is acquired to finance a home.  Payments are made by the homeowner which “buys down” the loan amount and increases the homeowner’s equity.

A Reverse Mortgage is just the opposite.  That is, the homeowner already has equity in the home and wishes to reclaim some or most of it.  The equity in the home then pays for the carrying costs of the home and may provide monthly tax-free income to the homeowner to help to maintain a standard of living.

The other way to turn a home’s equity into cash is to obtain a “cash-out” mortgage loan which allows a homeowner to refinance the home and receive a lump sum cash payment at the closing.  The homeowner would then make payments to the lender as described above.

One of the primary differences between a Reverse Mortgage and a “cash-out” refinance is that the Reverse Mortgage does not have a monthly mortgage payment.  The cash-out refinance would result in a monthly mortgage obligation.

Reverse Mortgage Home Refinance

A Reverse Mortgage is a way for homeowners who are 62 or older to take some of the equity out of their primary residence, tax free, in order to maintain their lifestyle. The idea is to help people stay in their own home and have the funds to do so.

A Reverse Mortgage is available to homeowners where at least 1 spouse is aged 62 or older and has approximately 50% equity in their home or more.  Reverse Mortgages are regulated and insured by the Federal Housing Administration (FHA) and is the most regulated mortgage program in the country.

There are no monthly payments with a Reverse Mortgage.  The homeowner continues to own the home and can leave it to their heirs.  After getting a Reverse Mortgage, the homeowner simply continues to pay their property taxes and homeowner’s insurance.

With a Reverse Mortgage refinance, the homeowner may be able to also receive a lump sum cash payment at the closing depending on the amount of equity in the home, the homeowner’s age and the available interest rate.

Reverse Mortgage Home Purchase

A Reverse Mortgage may also be used to purchase a home.  The concept is similar to that of a refinance except the homeowner contributes the equity during the purchase by way of a down payment.  Then the homeowner lives in the home without a mortgage loan payment.

This program has become increasingly popular in recent years.  Since the mid-2000’s, property values have decreased or only increased slightly.  This has left many retirees with less equity than would have been predicted.  When it comes time to downsize into a home, there is not enough equity in the current home to outright buy another one.  The Reverse Mortgage purchase loan can provide a solution if the homeowner does not wish to have a loan payment or tap into retirement accounts.

Why Use a Reverse Mortgage?

A joint study between Harvard University and the AARP revealed that more folks are retiring with outstanding mortgage loan balances and smaller retirement accounts than ever before.  This has been one of the causes of stress for those who have retired or are looking to retire.  The study discusses how obtaining a Reverse Mortgage can help those 62 years or older to retire and maintain their lifestyles.

Please visit the question-and-answer page about Reverse Mortgage FAQs page written by Lou Romney, a Reverse Mortgage Specialist.  Any questions asked below will be directed to him.

Top Photo Credit: (c) Can Stock Photo / AmySuem
Lower image photo credit: Hadi Zaher via photopin cc

Leave a Reply

Your email address will not be published. Required fields are marked *