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Here are a few reasons why it pays to get a reverse mortgage

THE REVERSE MORTGAGE

A Reverse Mortgage converts equity in your home into cash. You can receive a large sum all at once, establish a line of credit to draw on as you please, or get paid in monthly installments. 

A reverse mortgage converts equity in your home into cash

The Whole Truth About The Reverse Mortgage

 

Retirement can pose a host of financial challenges for seniors, particularly those whose monthly income primarily consists of Social Security. Historically, those benefits have done a poor job of keeping pace with inflation, and when we throw in rising healthcare costs, it's easy to see why so many older Americans are struggling.

But many seniors have one major asset at their disposal -- their homes. Zillow estimates that roughly 34% of owner-occupied homes in the U.S. are owned by someone 60 or older. If you're part of that statistic, it means you're sitting on a potential cash source. All you need to do is to sell your home and use the proceeds of that sale to pay your living expenses.

Of course, the problem with that solution is obvious, and it's that you'll still need a place to live. But actually, there is a product that could give you immediate access to money while allowing you to stay in the home you're comfortable living in. It's called a reverse mortgage, and here’s how it works: Rather than pay a lender money every month, you get paid money based on the equity you have in your home.

You can qualify for a reverse mortgage as long as you're at least 62, use the home in question as your primary residence, and are able and willing to keep up with your homeownership costs -- meaning, continue paying your property taxes, retain homeowners insurance, and maintain your property.

A reverse mortgage converts equity in your home into cash. You can receive a large sum all at once, establish a line of credit to draw on as you please, or get paid in monthly installments. If you wish you can pay it back the same as you would any loan. And if you have chosen monthly disbursements, you could continue to collect those for the rest of your life (as long as you're in your home).

Therefore, the four most important borrower rules for reverse mortgages are as follows:

  • You must be 62 years of age or older.
  • You must own your home.
  • You must own your home outright, or have a substantial amount of equity.
  • You must live in the home as their primary residence.
  • You must complete a financial assessment.

since its introduction in 1961 and only grows stronger and safer with each year.  This is primarily due to rules and regulations set by the Federal Housing Administration (FHA).  

The FHA continually updates and regulates reverse mortgages with new guidelines to protect you as a borrower.  So what exactly are the current rules and requirements of the reverse mortgage loan product

Once you satisfy these eligibility requirements and after you obtain a reverse mortgage, you still have obligations to uphold. In order to enjoy all the features of a reverse mortgage loan, and ensure that you do not default on the loan, you are responsible for:

  • Immediately using reverse mortgage loan funds to pay off any other mortgage you may have.
  • Continuing payments on your home insurance, property taxes, and basic home maintenance.
  • Complying with all the loan terms, such as continuing to live in the home as your primary residence.

Beneficial Reverse Mortgage Loan Rules

The regulations about loan payback are quite important as well.  Luckily, the popular government insured reverse mortgage loan, also called a Home Equity Conversion Mortgage (HECM), is non-recourse.  This means that:

  • If the loan is not repaid after maturity, no assets other than the home can be taken to pay off the reverse mortgage loan.
  • If the loan debt surpasses the value of the home, the borrower will not owe more than the amount the home sells for.

HECM Government Regulations

In addition, the FHA has set some additional safeguards to protect borrowers and encourage responsible reverse mortgage loan use.

  • Before loan approval, part of the process is to complete a counseling session with an FHA-approved counselor. This counselor will make sure you know all your options and have all the reverse mortgage information you need to be able to decide if this loan is best for your situation.
  • In the first year of a reverse mortgage loan, you may only access 60% of your approved loan amount (or the amount required to pay off your current mortgage plus 10%, whichever is greater). After the first year, you may access the remaining amount. This is to encourage you to not pull from your equity too quickly.
  • Lenders are not permitted to require you to purchase other loans or financial products, as a condition of your loan.
  • Lenders are required to complete a financial assessment of prospective borrowers and analyze income against expenses. If the ratio shows that you may have some difficulty in paying recurring taxes, insurance, or other loan obligations, you may set aside money from your loan funds in order to pay your financial obligations.
  • Additionally, the law gives you three business days after the loan closing to change your mind and cancel your reverse mortgage loan. Lenders cannot charge you interest during this period of time.

New Reverse Mortgage Rules and Regulations

Two new rules were implemented in 2014 and 2015 for the reverse mortgage loan program. Still in effect for 2017, these rules regarding non-borrowing spouses and the borrower’s financial assessment add new layers of protection for all borrowers.

  • Reverse Mortgage Rules for A Non-Borrowing Spouse

This rule makes it easier for the non-borrowing spouse to continue living in the home following the death of a borrower.  The non-borrowing spouse will inherit the responsibility for the reverse mortgage loan as well as the home’s ownership.  Borrowers should be aware, the age of the non-borrowing spouse may affect some loan terms such as the amount available to borrow.

  • Financial Assessment

This rule mandates that lenders financially assess all reverse mortgage loan applicants.  Borrowers are required to submit documentation regarding income, taxes, assets, payment history, and other debt to lenders.  The purpose of this rule is to ensure that borrowers have the financial capability to fulfill their loan obligations, such as continuing to pay property taxes and home insurance.

Although the FHA’s rules and regulations for the reverse mortgage loan may seem stringent to some, they are designed with the borrower’s best interests in mind and are truly beneficial to you as a borrower.  These regulations and rules are meant to encourage borrowers to use this great financial tool as part of an intelligent retirement planning strategy, which in turn solidifies the overall strength of the reverse mortgage loan product.

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