Reverse Mortgage Facts
What Is a Reverse Mortgage?
Homeowners over the age of 62 can borrow against the value of their home with a reverse mortgage. A reverse mortgage is a loan where the lender pays money to the homeowner instead of the other way around. The loan can be paid out as a lump sum, line of credit, or a fixed monthly payment.
Reverse Mortgage Types
A home equity conversion mortgage (HECM) is the most common type of reverse mortgage. For this kind of loan, there are no income requirements. HECMs are insured by the Federal Housing Administration and generally offer lower interest rates than privately insured loans.
Proprietary reverse mortgages are private loans, usually used for larger advances on higher-valued homes. They don’t have up-front or monthly premiums and lenders often charge a higher interest rate or may lend less. Similar to HECMs, a proprietary reverse mortgage has no restrictions for use.
A single-purpose reverse mortgage is offered by state, local, or nonprofit agencies. This type of loan has very limited use but homeowners will pay less in interest and fees.
What are the requirements for a reverse mortgage?
- The homeowner must be over 62 years old.
- The homeowner should have considerable equity – at least 50%.
- The home that is being borrowed against must be the owner’s primary residence.
- A HUD-approved counseling session must be attended.
- The house must be maintained.
- The homeowner must be able to pay taxes and insurance.
When is a reverse mortgage paid back?
- If the property is sold
- When the homeowner passes away
- If the homeowner lives outside of the house for more than one year
- If the homeowner fails to pay property taxes or homeowners insurance
How much can you borrow?
The amount is different for everyone. Here are some factors that will determine the value of a reverse mortgage:
- Age – The loan proceeds will be based on the age of the youngest borrower.
- Interest rate – Most interest rates for this type of loan are adjustable. In turn, current rates will affect your proceeds. You should also expect lenders to add 1 to 2 percent to base rates
- Home value – The higher the appraised value of the home, the higher the loan. But, it’s important to note that, typically, more than 80% of a home’s equity cannot be used.
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A reverse mortgage can be helpful for senior homeowners who need extra income support! For more information, start here!