Everything You Need to Know About Reverse Mortgages
There are many types of home loans available to homeowners who have equity in their home, and a reverse mortgage is one of these loans. Understanding reverse mortgages and how they work can help homeowners who qualify to decide whether or not a reverse mortgage is for them. If you're a homeowner seeking a funding source or extra money to live on, here's what you need to know about reverse mortgages.
What Is a Reverse Mortgage?
A reverse mortgage is a type of loan available to homeowners who are at least 62 years old or older. In order to be eligible, the senior must own their own single family or multi-family residence. In addition, the homeowner must have a lot of equity and very little debt on their existing mortgage. The home must be in good condition, and the homeowner must be capable of paying their monthly mortgage and annual property taxes.
If the homeowner qualifies for a reverse mortgage, the homeowner's equity can be turned into a loan that is paid to the homeowner either in a lump sum or in installments. There are different kinds of reverse mortgages. The amount of money that can be borrowed, the purpose the money can be borrowed for and other details of the mortgage depends on the particulars of each individual loan.
What's the Difference Between a Reverse Mortgage and a HELOC?
The biggest distinction between a reverse mortgage and a typical home loan like a home equity line of credit (HELOC) is the repayment plan. A HELOC is similar to a credit card in that the homeowner has a credit limit and may spend up to that limit. Once money has been spent, the homeowner must make monthly payments to pay down the balance. Paying down some of the balance frees up credit that the homeowner can then spend.
A reverse mortgage is different because the homeowner doesn't make a single payment for a reverse mortgage until the house is sold, the homeowner moves out or the homeowner dies. This makes this type of loan a good option for a senior living on a fixed income, because the homeowner doesn't have to make a burdensome payment until the loan comes due. The title stays in the homeowner's name.
Because of the unusual repayment terms, a reverse mortgage may not be a good option for a homeowner who wants to hand their home down to their children, or who would like to leave the money from their home sale for their heirs. The reverse mortgage is a good option for a homeowner who does not have heirs or who does not prioritize leaving an inheritance, and who does need to supplement their fixed income with equity from their home. Many homeowners make the decision to get a reverse mortgage after discussing their position with their children, as this will affect the homeowner's estate.
Homeowners who want to keep as much inheritance for their children as they can may need to explore other loan options. Working with a financial advisor and a lender is a good way to explore those options.
What Can Reverse Mortgages Be Used For?
Spanish Hills homeowners take out reverse mortgages for different reasons. Sometimes homeowners choose to get a reverse mortgage to supplement their fixed income. Other times a reverse mortgage can be used to pay for in-home care that allows the homeowner to stay in their home. In this case, the loan comes to the homeowner in monthly installments.
Other times, homeowners use a lump sum from their reverse mortgage to make a major purchase or home upgrade. Some reverse mortgages can only be used for a single purpose that is established at the time when the homeowner applies for the loan.
What Should You Do if You're Interested in Getting a Reverse Mortgage?
Different states have different reverse mortgage options. Homeowners who qualify and who are interested in getting a reverse mortgage should first reach out to a reputable lender in their area. Different lenders may offer different loan packages at different rates. It's important for homeowners who want a reverse mortgage to shop around until they find a mortgage that works for their needs.
If you're a homeowner who wants to get a reverse mortgage, contact a reputable lender in your area. Your lender can give you information that can help you decide if a reverse mortgage is right for you.