Many senior citizens have been significantly impacted by the volatile economy. The downward swing has forced many to dramatically change their retirement plans. One option available to them is the Reverse Mortgage. It is a relatively new product and seems to be very misunderstood. The Reverse Mortgage is designed to allow the borrower the ability to access the equity in their home today. They are not required to make payments to repay the equity taken. The essence of the Reverse Mortgage is that it is a loan with no payments due until some later time, which very well may be after the borrower is no longer in the property for whatever reason. The ability to pay-off a conventional mortgage with a Reverse Mortgage will end that monthly payment which may be draining your funds.
What are the requirements to getting a Reverse Mortgage? You must be 62 years of age or older. The property being used must be your principal residence in other words you must live there. If you do have a mortgage secured by the property the balance on it must be low enough so that it can be paid from the proceeds of the closing. The Reverse Mortgage must be a first mortgage. The property can be a single family home, a 1-4 family dwelling as long as you reside in one of the units, a HUD-Approved condominium or a manufactured home that meets FHA requirements. Your income levels do not matter. You will also have to work with an independent HUD approved counselor in their local community to review the Reverse Mortgage Process, to make sure you know your rights.
The amount you can borrow is going to depend upon a few factors, your age, the current interest rates, and the appraised value of your home. The amount you borrow can also be limited by the FHA’s mortgage limits for the area where your property is located. Basically the amount you can borrow will be greater the older you are, the more valuable your property is and the lower the interest rates are. The AARP has on its website a calculator to determine the amount the borrowers may have available to them. http://rmc.ibisreverse.com//rmc_pages/rmc_aarp/aarp_index.aspx.
You will have to attend a closing just like any other loan transaction. The documents creating the security interest in your home will be signed then with other disclosures. You will have the next three business days following your closing to cancel the transaction. You can cancel this transaction during that time for any reason at all, provided you cancel it properly. The cancellation period does not apply to purchases transactions using a Reverse Mortgage.
Once you get your loan how can payments be made to you? A lump sum of the loan proceeds can be paid to you after the cancellation period has expired. The funds can be paid to you on a monthly basis. The payment will be the same each month and will continue as long as at least one of the borrowers is living in the house. This is called the Tenure Payment. You can also select the Term Payment which is similar to the Tenure Payment but the number of payments is for a fixed period of months. The next option is the Line of Credit. This allows the borrower the ability to select the times and amounts when you want the money. You can do this until the amount in the Line of Credit is exhausted. The Modified Tenure option is a combination of Line of Credit and monthly payments for as long as one borrower is in the home. The last is the Modified Term, which is a combination of Line of Credit with fixed monthly payments for a set term. These options allow the borrower to plan their retirement with more certainty.
The borrower will have to pay their taxes and homeowner’s insurance. If they do not they may be subject to the bank making the claim that the loan has to be paid. Otherwise as long as one of the borrowers is living in the property no payments will be due. If the property is sold by the borrowers the loan must be paid off. If the borrowers are deceased then it will be the estate’s obligation to pay off the amount due. The estate when it sells the property will then be able to keep the funds that the property sold that exceed the amount due. The amount due from the estate cannot exceed what the property is worth. If the estate wants to keep the home they could pay off the balance of the loan at that time.
Most Reverse Mortgages are taken out on an owner occupied principal residence. There is the option of purchasing a home using a Reverse Mortgage. The borrower must meet all of the requirements mentioned above and also have the funds to purchase the property when added to the available Reverse Mortgage loan proceeds. The rest is the same, no monthly payments due.
The Reverse Mortgage can be a valuable tool in planning your future. You should meet with a trusted advisor that offers Reverse Mortgages. You will now be able to ask the questions you need to based upon this information. The Reverse Mortgage may not be right for everyone but everyone should understand it so they can be aware of all of their options and make sound decisions. You will be the one in charge and making the best decisions for you and your future.
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