Additionally, homeowners must qualify with certain income restrictions. As the name implies, the funds are often limited to a single purpose, such as home renovation or property taxes. Single-Purpose Reverse Mortgages are sometimes offered by nonprofit groups or local or state governments. Several Web sites include primers on reverse mortgages as well as calculators giving rough estimates of loan amounts:įinancial Freedom Senior Funding Corp. It can be a life line, but you need to understand what you are getting into. Before you sign, you need to talk to the members of your family, your attorney, your CPA, financial advisor, check with all of your trusted counselors and relatives. If you are old enough, and your primary residence is worth enough, and your present mortgage has a low or zero balance, you qualify. On the flip side, your credit doesn’t matter, your income doesn’t matter and your assets don’t matter. Some applicants are thrilled to find a way out from making existing mortgage payments of $1,000 or more a month, (if it is a fixed rate and payment, even if the balance is low, the payments can eat into Social Security income) while others drop out of the process when they learn they won’t be able to leave their home debt-free to their children.Ī reverse-mortgage lender can require accelerated repayment of the loan under certain conditions, including failure by the homeowner to pay taxes or insure the property. One is that reverse-mortgage applicants are required to go through counseling. Since the introduction of this product, many protections have been added. A lender cannot foreclose against the home if the loan value balloons above the residence’s value. When thinking about these high entry costs, bear in mind that there are NO monthly payments coming in to the lender, who is risking a possible downturn in real estate values in the future. The loans also differ from traditional mortgages in that they generally carry higher closing costs and higher interest rates than a standard 30 year fixed mortgages. What is owed under the loan rises during the life of the loan unless the borrower decides to pay off. After close of escrow, borrowers will receive the money in the form of a credit line, monthly payments, a lump-sum payment or a mix of the three. The older you are, the larger the reverse mortgage can be. Factors affecting how much you can receive include your age, the amount of equity, and current interest rates. Each borrower’s circumstances vary depending on a borrower’s finances and situation. The case above is only an estimate and assumes the couple has no existing mortgage payments. That is the limit for Federally insured reverse mortgages, but higher loan limits are available. It works best for seniors who are house rich and cash poor.įor example, a 65-year-old married couple owning an average Bay Area home worth $615,000 could qualify for a federally insured reverse mortgage that gives borrowers a credit line of $262,068, according to a reverse mortgage calculator on AARP’s Web site. If you qualify, you can convert that equity into cash, monthly payments or a credit line. It may be right for you if you are at least 62 years old and have a lot of equity. At that time the borrower or heirs can sell the home or get a new mortgage to pay back the loan. The principal, along with accumulated interest, is due when the last surviving borrower dies or moves from the residence permanently. But unlike other loans, the borrower doesn’t have to pay anything back during the life of the loan. These companies will lend money and only a primary residence can be used as collateral. They are issued by insurance companies, finance companies and some banks, and if they are below a certain limit, Fannie Mae will guarantee them. A reverse mortgage, as the name implies is essentially the opposite of a traditional mortgage.
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