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A reverse mortgage loan is a money you can borrow against your home. It is called a reverse mortgage because it is essentially a mortgage in reverse.
You can take the home equity you have built up and turn it into cash or a line of credit.
Unlike a traditional mortgage, one that you may have used to buy your home, you do not need to make loan payments with a reverse mortgage.
With a reverse mortgage, you continue to maintain ownership of your home.
While a reverse mortgage is similar to a home equity line of credit (HELOC), it is specifically designed for a homeowner who is 62 or older.
The amount you can borrow is a percentage of the value of your home. The precise percentage depends on your age, the value of your home, and the risk profile of your lender.
The limit on the amount borrowed depends on
If you are looking for a federally-insured reverse mortgage, the maximum limit on the amount for 2020 is $765,600.
If you are looking to borrow into the millions, a proprietary reverse mortgage can help you.
Before discussing how a reverse mortgage could be better than a traditional mortgage for your needs, let’s first summarise the similarities between the two products.
In both a reverse mortgage and a traditional mortgage,
So what makes reverse annuity mortgages so attractive?
One of the primary reasons is that you do not pay monthly mortgage payments as long as you live in your home.
An experienced loan officer can help identify the most cost-effective reverse mortgage product for your needs.
There are three types of reverse mortgages: Home Equity Conversion Mortgages, Single-purpose reverse mortgages, and Proprietary reverse mortgages.
Each one has unique features, and a loan officer could help you identify the one that works best for your needs.
The most common reverse mortgage you have available as an option is a Home Equity Conversion Mortgage (HECM).
A mortgage HECM is a reverse mortgage that allows you to take the equity in your home and turn it into cash in a lump sum or a line of credit without monthly payments.
This mortgage is available through the Federal Housing Administration and is insured by the Department of Housing and Urban Development (HUD).
A Home Equity Conversion Mortgage is the only government-insured reverse mortgage and is only available from HUD-approved lenders.
If you have a specific goal for your borrowing, a single-purpose reverse mortgage could be your best bet.
As the name suggests, these mortgages can only be used for one purpose and no other.
This purpose is a lender-approved expense, and could be a home renovation project, or to pay property taxes.
Because single-purpose reverse mortgages only claw into a small portion of your home’s equity, it is a less risky loan for the lender.
As a result, these mortgages can be a cost-effective option. There are usually minimal to no fees on these loans, and the interest rates are low.
If you are looking for a bigger loan amount than what you can get from a Home Equity Conversion Mortgage, proprietary reverse mortgages may be for you.
A proprietary or jumbo reverse mortgage lets you borrow money against your home through a private lender.
Unlike single-purpose reverse mortgages, you can use this money for any purpose.
The amount of money you can get from a proprietary reverse mortgage is dependent on how much of a risk your lender is willing to take.
The advantage of these loans is that there usually is no monthly mortgage insurance premiums to be paid or upfront fees.
Considering any of the three reverse mortgage options above? Here is a basic eligibility checklist.
If you have decided that a reverse mortgage is what you need and you meet the eligibility requirements, the next step is deciding on a lender.
You are faced with a wide range of possible lenders and mortgage brokers. You may have heard of one from friends, another one off of a billboard. Fortunately, there are a number of factors that you can use to decide on your mortgage broker.
The first is to ensure you’re working with a reputable professional. Is the broker experienced, and has the broker been able to get results for their clients consistently?
When you work with a certified mortgage broker, you are assured of working with someone who is knowledgeable about the most recent policies and rules.
With limits and regulations changing every year, a trusted loan officer can help you identify the best reverse mortgage product for your needs.
The second is to identify the depth of experience your broker has with reverse mortgages.
A mortgage firm with 30+ years of general experience may not be able to provide you with the subject-specific experience that someone who has a track record in reverse mortgages.
This seemingly small detail can make a difference in tens of thousands of dollars in incurred fees and payments.
Finally, and most importantly, does working with the mortgage broker make sense to you? Are you being presented with credible facts and a realistic timeline?
These are some of the questions that are worthy of consideration.
A reverse mortgage can be a considerable amount of money and working with the right mortgage broker can save you from hidden surprises later on.
After decades of hard work, paying off your home mortgage, a reverse mortgage can help you live the life you worked for. The same home that you paid off could now help you retire comfortably.
We have helped Californians use a reverse mortgage to realize a comfortable retirement.
For more information and to understand which reverse mortgage product can work best for you, contact us today.