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Reverse Mortgages Made Easy
A reverse mortgage is a loan against your home that you don't have to repay as long as you live there.
When you purchased your house you had a regular or forward mortgage (15 year, 30-year, adjustable rate, etc.), and as you made your monthly loan repayments your mortgage debt continued to go down over time until you've paid it all off or lowered it significantly. Meanwhile, your equity is rising as you repay your mortgage and as your property value continues to appreciate over time.
With a reverse mortgage, you go full circle. Now you receive money, lump sum, monthly payments, credit line or a combination of these. Now you get the money in reverse. Interest on the money will continue as you keep getting cash advances, make no repayment, and the interest is added to the loan balance (the amount you owe). That's why reverse mortgages are called rising debt, falling equity loans, however, keep in mind that your homes equity also should continue to appreciate over time.
Think of it this way. In a regular or forward mortgage, you use the debt to turn your income into equity. In a reverse mortgage, you use the debt to turn your equity into income. You are reversing the process you used to buy your home. So when you started, you had income and wanted equity. But now, you have equity and want income. In both cases, you can use the debt to turn what you have into what you want.
Reverse Mortgages Differ From Regular Mortgages in 3 Important Ways:
- To qualify for a regular mortgage, the lender checks your income to see how much you can afford to pay back each month. With a reverse mortgage, however, you don't have to make monthly repayments. Therefore, income is not a requirement for a Reverse Mortgage.
- With a regular mortgage, you can lose your home if you don't make your monthly repayments. However, with a reverse mortgage you can't lose your home by failing to make monthly loan payments because you don't have any payment to make.
- When you qualified for your original purchase, the lender checked your credit to make sure you paid your bills on time, used a credit score, & calculated your percent of debt to your income. However, with a reverse mortgage, we don't look at your credit score or debt ratios.
A reverse mortgage is worth your consideration if it fits your particular circumstance. A reverse mortgage will allow you to cost-effectively tap into your home's equity and enhance your retirement income. If you have some bills to pay, want to buy some new carpeting, furniture, need to paint your home, or simply feel like eating out and traveling more, a reverse mortgage may be the perfect solution.
How valid are common objections?If you're like most senior homeowners, you worked hard for many years to eliminate your mortgage so you'd own your home free and clear or have a very low mortgage balance. After what you've gone through, the thought of reversing that process and rebuilding the debt owed on your home can be hard to imagine. Furthermore, reverse mortgages are a relatively new type of loan about which there are many misconceptions. We can answer your questions & give you a comfort level and the proper information to make an intelligent and informed decision as to whether or not a reverse mortgage is right for you.
Can you lose your home?Many seniors don't fully understand reverse mortgages and often have preconceived notions, about how these mortgages work. Seniors with home equity often erroneously think that taking a reverse mortgage may lead to being forced out of their homes or ending up owing more than the house is worth.
The fact is you won't be forced out of your home. Nor will you (or your heirs) end up owing more than your house is worth. Federal law defines reverse mortgages as non-recourse loans, which simply means that the home's value is the only asset that can be tapped to pay the reverse mortgage debt balance. If a home's value does drop below the amount owed on the reverse mortgage, the lender must absorb the loss and look to HUD for reimbursement.
Would a home equity loan or second mortgage work better?Some seniors who are intimidated by the idea of a reverse mortgage wonder whether it would be simpler to get a home equity loan or a new mortgage that allows them to take some equity out of their home. The problem with this approach is that you now have to begin making traditional mortgage payments, thereby cutting into your monthly cash flow & savings.
Suppose that you own a home worth $250,000 with no mortgage debt. You decide to take out a $100,000, 15-year mortgage at 8 percent interest. Although you will receive $100,000, you'll have to begin making monthly payments of $956. No problem you may think; I'll just invest my $100,000 and come out ahead. It's not that simple.
Most seniors are more comfortable with government or high grade corporate bonds which generally yield between 5% and 6% - far short of the amount you would need to cover your monthly mortgage payments. You could invest in stocks and earn the market average return of 10 percent per year, which is not guaranteed. In this case, your return would be more than $833 per month, but still not enough to cover your monthly mortgage payment. (Also note that most income from stocks and bonds is taxable at both the federal and state level). By contrast, reverse mortgage payments are not taxable.
Another downside of taking out a traditional mortgage to supplement your retirement income is that the longer you live in the house, the more likely you are to run out of money and risk the possibility of missing loan payments because you drain your principal (savings) to supplement inadequate investment returns and to cover your monthly loan mortgage payment. If that happens, you may be faced with foreclosure.
Who can get a reverse mortgage?We know that reverse mortgages are not for everyone, because not everyone qualifies to take out a reverse mortgage. Check below to see if you are eligible:
- You must own your home. All of the owners must be at least 62 years old.
- Your home must be your principal residence - which means that you must live in it more than half the year.
- For the federally insured Home Equity Conversion Mortgage(HECM), your home must be a single-family property, a 2- to 4-unit building, or a federally approved condominium or planned unit development (PUD). For a Fannie Mae Home Keeper mortgage, you must have a single-family home or condominium.
- The value of your home must qualify to satisfy any existing liens.
- If you have any debt or liens against your home, they can be paid off at the reverse mortgage settlement.
My goal is to insure that you feel comfortable about the ins and outs of a reverse mortgage. If I can help you make next month better for you than this month, then our mutual goals will be achieved.
Please take time to review the rest of this web site, or call me personally. Also, make sure you access our FREE video or audio CD on this web site. If you have difficulty uploading the video or audio, use the contact form to make your request. We will get you a copy of the video, audio CD or audio cassette, to you immediately.
Please jot down any questions you have, and then email or call me. Be sure to consult with your accountant, tax advisor, trusted family member.
For your mandatory HUD counseling, please use the contact form. I will get you the list of agencies nearest you, with local & toll free numbers. Third party counseling is a requirement for reverse mortgages. Telephone counseling is available.
