Click on the video below to learn about reverse mortgages and how it works.
Learn How Reverse Mortgage Works
A reverse mortgage loan can be a good solution to supplement your retirement income so that you can live comfortably in your sunset years. However, it is vitally important to understand how they work before making a decision about whether a reverse mortgage is right for you. Below, you will find a brief explanation of how reverse mortgages work, but we would encourage you to speak with an Expert if you desire additional information.
A Brief Explanation of Reverse Mortgages
Think of a traditional home mortgage. As you are aware, a mortgage allows you to build equity in your home by making regular, monthly payments year after year. This occurs because equity can be boiled down to the difference between your home’s market value and how much you owe on all outstanding liens on the property. In essence, equity can be thought of as money that is tied to the value of your home.
Conversely, a reverse mortgage allows you to borrow the money tied to your home’s equity in payments that are paid to you, generally on a monthly basis. As you receive these payments, the equity you have built is slowly reduced and your loan balance slowly increases. The reverse mortgage loan is designed to be repaid when you, the home owners, leave the home. This allows you to access the money that you have tied to your home while you still own it and live in it.
How Does A Reverse Mortgage Work
Like a traditional residential home mortgage, a reverse mortgage loan is based on the equity available in your home. The difference is rather than the homeowner making monthly payments to decrease the current mortgage balance with a reverse mortgage, the loan balance grows over time because the homeowner is not making monthly mortgage payments and is actually retrieving or extracting equity from their home.
One of the key benefits of a reverse mortgage solution is that payment or any repayment is not required until the last homeowner has passed away or has moved out of the property. A person’s life expectancy is a key component in determining the amount of equity a borrower might be able to access and receive.
Review a Reverse Mortgage Example
Let’s pretend that Joyce is 70 years old and wants to do some traveling with her sister as well as a couple of repairs and update on her home. However, she still has $50,000 remaining on her current mortgage and the home repairs will cost her about $20,000 to replace her widows and add maintenance free siding. Lastly, she would like to get as much as she can out of her home so she and her sister can do a little traveling and put money in her savings account in case of an emergency but she is not sure what options are available to her. Her sister mentioned and recommended that she try a reverse mortgage and referred her to the USA Reverse website and our Mortgage Consultants.
After speaking to a USA Reverse Mortgage consultant, Joyce had her home appraised by a certified FHA appraiser and also scheduled an appointment with a counselor who will help her assess her options and alternatives. The good news was, the appraiser determined her home is now worth $390,000. Based Joyce’s scenario, the following illustration has been developed to show you what she could consider and receive if she were to move forward with a reverse mortgage*
|Loan Principle Limit||$224,640|
|Total Est. Fees||$10,101|
|Net Principle Limit||$214,539|
|Lump Sum Payment||$54,683|
|Note: No more Monthly Payments|
*The information above is only an estimate. The above is based on interest rates for the week of February 22, 2016, which may or may not be applicable at this time or for a loan which you may qualify. The above is not a loan offer, but is provided for illustration purposes only. For clarity, this is not an official loan disclosure and rates, fees and costs vary from lender-to-lender. Only an approved reverse mortgage lender can determine if you are eligible.
The Rules of Reverse Mortgages
There are certain rules that must be followed when applying for a reverse mortgage. Some of those rules are:
- Borrower Must Be at Least 62 Years of Age.
- Borrower’s Home Must Be the Primary Residence.
- Borrower Must Own/Be Purchasing the Home.
- Borrower Must Have Substantial Equity in the Home.
- Borrower Must Continue to Keep up on Property Taxes, Insurance and Homeowner Insurance (HOI) Fees.
It is important to note that there are other rules that must be followed. You should make sure that you understand all of the applicable rules before applying for a reverse mortgage home loan. To learn more about the different types of reverse mortgages and the rules associated with them, check out our Free Guide to Reverse Mortgages.
Getting Started on Your Reverse Mortgage
If you feel that you are ready to begin the reverse mortgage process, we encourage you to follow these simple steps:
Step One: Speak With an Expert. A USA Reverse licensed lender representative will be happy to provide you with a no obligation review to help you get started.
Step Two: Receive Counseling From an HUD-Approved Counselor.
Step Three: Begin the Application Process. Our licensed reversed mortgage lenders will gladly walk you through the entire application process.
Step Four: Application Processing and Approval. Your home will need to be appraised as part of the application process. You will also need to sign documents that will need to be reviewed. Loan approval is dependent on this process.
Step Five: Closing the Loan and Receiving Funds. Once approved, your loan will close and you will begin to receive funds. This is often done in monthly installments, but can also be done in a lump sum or as a line of credit. The funds are available to you for whatever you need or want to spend the money on.
Get your questions answered today.