A reverse mortgage is a special type of home loan approved by Federal Housing Administration (FHA) that lets the homeowner, ages 62 and up, turn some of the equity in their home into tax-free cash. The equity that is built up over years from making mortgage payments can be paid to the homeowner. Unlike a traditional home loan or equity loan, reverse mortgage borrowers do not have to repay the loan until they die, sell the the home, or no longer use the home as their principal residence. The homeowner can also use the equity loan to purchase a primary residence, pay medical bills, unexpected financial emergencies, property taxes, home insurance or any other living expenses.
Reverse mortgages can also be used for financial security and retirement planning; they are used to achieve both financial and personal goals, including maintaining quality of life.
Benefits of A Reverse Mortgage:
1. Tax-free proceeds can be used to pay off most expenses.
2. No monthly mortgage payments.
3. No early prepayment penalty. 4. Generally has no effect on Social Security and other regular benefits.
5. Can choose fixed interest or adjustable interest rate. 6. Stay in and retain the title and ownership of your own home. 7. Helps you plan for retirement and maintain financial security.
Eligibility for the FHA Reverse Mortgage:
1. The home must be a single family home or a 2-4 unit home with one unit occupied by the borrower.
HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.
2. 62+ years old.
3. No delinquency on any federal debts. 4. The borrower must able to pay off ongoing property expenses, including taxes and insurance, and abide by the terms of the loan.
5. Participate in a consumer information session given by a HUD-approved HECM counselor.
1. Verification of Income, assets, monthly living expenses, and credit history.
2. Verification of timely payments of real estate taxes, hazard and flood insurance premiums.
The amount of money you may receive depends on age, appraised home value, current interest rates, lending limits, and financial assessments. Once you are approved, you can choose from different payment plans for receiving the funds.
> Tenure - equal monthly payments, as long as the borrower lives in the home and uses it as a primary residence. > Term - equal monthly payments for a fixed period of months.
> Line of Credit - unscheduled payments or in installments, at times and in an amount of your choosing until
the line of credit is exhausted.
> Single Disbursement Lump Sum - a single lump sum disbursement at mortgage closing. > a combination of monthly payments and a line of credit (modified term and tenure payments).
Facts About Reverse Mortgages
Below are some general facts that may address some concerns about reverse mortgages.
1. As long as you continue to follow through with the terms of the loan, you do not have to repay the loan until you no longer use the house as a primary residence. The loan also has some obligations to follow--you must live on the property, pay continuing property expenses such as taxes and insurance, and maintain the home under Federal Housing Administration guidelines. 2. The house and the title will still be under your ownership, however.
3. Even if there is still a mortgage on your house, you can still take out a reverse mortgage anyway. Borrowers can use a reverse mortgage to pay off an existing mortgage.
4. Reverse mortgage proceeds are not taxable as they are not considered to be income.*
5, The proceeds can be used for many different things. Many borrowers use it to supplement their retirement income, hold off on collecting social security benefits, pay off debts such as regular mortgages or medical expenses, especially unexpected medical emergencies, etc. They are not restricted to certain purposes.
6. Reverse mortgages aren't just for people who are in financial difficulty or with low-incomes. People with good incomes and assets, are also able to use reverse mortgages. Reverse mortgages are also good for planning for financial security in the future--guarding against future market volatility and ensuring a suitable retirement without worrying over sudden financial emergencies. That way, one can continue to enjoy and maintain the quality of life they want.
*However, before taking out a reverse mortgage you should discuss with a financial adviser or appropriate government agencies to learn about possible overall effects on taxes and benefits.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.