A reverse mortgage is a loan that gives borrowers access to a portion of their home equity. The funds received through a reverse mortgage can be used to repay a borrower's mortgage loan, renovate the home, or simply increase a person's cash flow. While reverse mortgages have been offered for several decades, these loans have become significantly more popular over the past ten years.
Qualifications, Limitations, and Loan Types
To qualify for a reverse mortgage, borrowers must be at least 62 years of age and own a one to four unit property that they use as their primary residence. Approved manufactured homes and condominiums are also eligible. If there will be two borrowers on the loan, both must be at least 62 years of age.
Borrowers must also own their home outright or have built a substantial amount of equity. The exact equity requirements will depend on the age of the borrowers. However, for borrowers to be approved, they must have enough equity in their home to pay off their mortgage loan with the cash they receive.
Reverse mortgage payouts are based on a borrower's age, equity, interest rate, and the value of the property. Currently, the maximum payout a borrower can expect to receive from a federally-insured reverse mortgage is $625,500. This limit is honored regardless of whether a borrower owns a more valuable property.
The amount of money a borrower may receive will also depend on the loan product he or she chooses. Presently, over 90% of borrowers choose Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. There are two different types of HECMs: the Standard and the Saver. The HECM Standard offers larger payouts, while the Saver offers much reduced mortgage insurance premiums. While both loans provide unique benefits, the HECM Standard will allow borrowers to access the most equity.
How one chooses to receive their cash will also affect the size of his or her payout. Consumers may choose to receive their cash as one large payment, monthly payments, a line or credit, or a combination of these options. Those who choose monthly payments will also need to decide whether they wish to receive fixed payments for a set term or until they leave their home.
The Benefits and Disadvantages of Obtaining a Reverse Mortgage
Due to their quick rise in popularity, reverse mortgages have been the subject of much criticism. Critics often complain of high fees and unsavory terms. It is true that reverse mortgages are somewhat expensive. However, many cash-poor seniors are willing to pay for the opportunity to tap into their equity, especially if it means staying in their home. It is also important to realize that most borrowers roll fees and closing costs into their loan, which eliminates the need to bring any cash to closing.
Reverse mortgages offer consumers a very unique opportunity. Instead of making monthly payments to a lender, these loans pay borrowers. Any funds that a borrower receives will not need to be repaid until he or she passes away, sells the home, or stops using the home as a primary residence.
Another benefit of these loans is that they are easy to qualify for. Seniors that depend on Social Security may not have enough income to qualify for a home equity line or second mortgage loan. Since lenders do not base eligibility on income, these mortgages are more available to seniors. While seniors should consider all of their options before taking a reverse mortgage, hundreds of thousands of borrowers have found these loans to be their most beneficial option.
Qualifications, Limitations, and Loan Types
To qualify for a reverse mortgage, borrowers must be at least 62 years of age and own a one to four unit property that they use as their primary residence. Approved manufactured homes and condominiums are also eligible. If there will be two borrowers on the loan, both must be at least 62 years of age.
Borrowers must also own their home outright or have built a substantial amount of equity. The exact equity requirements will depend on the age of the borrowers. However, for borrowers to be approved, they must have enough equity in their home to pay off their mortgage loan with the cash they receive.
Reverse mortgage payouts are based on a borrower's age, equity, interest rate, and the value of the property. Currently, the maximum payout a borrower can expect to receive from a federally-insured reverse mortgage is $625,500. This limit is honored regardless of whether a borrower owns a more valuable property.
The amount of money a borrower may receive will also depend on the loan product he or she chooses. Presently, over 90% of borrowers choose Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. There are two different types of HECMs: the Standard and the Saver. The HECM Standard offers larger payouts, while the Saver offers much reduced mortgage insurance premiums. While both loans provide unique benefits, the HECM Standard will allow borrowers to access the most equity.
How one chooses to receive their cash will also affect the size of his or her payout. Consumers may choose to receive their cash as one large payment, monthly payments, a line or credit, or a combination of these options. Those who choose monthly payments will also need to decide whether they wish to receive fixed payments for a set term or until they leave their home.
The Benefits and Disadvantages of Obtaining a Reverse Mortgage
Due to their quick rise in popularity, reverse mortgages have been the subject of much criticism. Critics often complain of high fees and unsavory terms. It is true that reverse mortgages are somewhat expensive. However, many cash-poor seniors are willing to pay for the opportunity to tap into their equity, especially if it means staying in their home. It is also important to realize that most borrowers roll fees and closing costs into their loan, which eliminates the need to bring any cash to closing.
Reverse mortgages offer consumers a very unique opportunity. Instead of making monthly payments to a lender, these loans pay borrowers. Any funds that a borrower receives will not need to be repaid until he or she passes away, sells the home, or stops using the home as a primary residence.
Another benefit of these loans is that they are easy to qualify for. Seniors that depend on Social Security may not have enough income to qualify for a home equity line or second mortgage loan. Since lenders do not base eligibility on income, these mortgages are more available to seniors. While seniors should consider all of their options before taking a reverse mortgage, hundreds of thousands of borrowers have found these loans to be their most beneficial option.
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