Have you heard about the exciting opportunities a reverse mortgage can offer? First, they allow homeowners to stay in their home, allow access to a portion of the home equity while offering flexible payment options. These benefits are why there were 48,902 reverse mortgage loans last year. However, you may want to contemplate if this is the best option for your lifestyle. Consider the key areas below when deciding if you should procure a reverse mortgage loan.
What is a Reverse Mortgage?
Reverse mortgages differ from standard loans in several ways. First with the average home loan, the borrower agrees to pay off the principal and fixed rate interest within a 15-30 year range. Secondly, in a reverse mortgage loan you can convert part of your home equity into cash. This means it gives you additional cash flow to help support your lifestyle. However, because of the great benefit that this provides to individuals, there are strict guidelines that first need to be met.
Determine Your Eligibility
In order to decide your eligibility, each reverse mortgage lender reviews three specific criteria. First, you must be at least 62 years old. This is because a reverse mortgage is intended for individuals nearing towards retirement and it provides additional supplement to their social security stipend. Second, if you have any existing liens or mortgages they must be paid in full with the reverse mortgage. However, there is a small exception to this rule. According to U.S. Department of Housing and Urban Development (HUD) you can have a small mortgage balance if it, “…can be paid off at closing with proceeds from the reverse loan.” Third, a reverse mortgage applies to certain types of properties. Below is a list of properties that can be HUD-approved:
- Single-family homes
- Certified condominiums
- Some multi-dwelling units
Lastly, anyone who wishes to obtain a reverse mortgage must participate in a one time counseling session with a HUD approved agency. This should be done prior to completing a loan application. Your lender may provide you with a list of agency to choose from.
Know Your Responsibilities
If you qualify for a reverse mortgage, you must follow the guidelines your lender will give you. Typically, you can expect to see the following criteria:
- The borrower must live in their home. You would not be able to rent out your property
- You must stay up-to-date on your property taxes
- You must keep your home insured
- You must maintain the property according to the Federal Housing Administration (FHA) standards
How Will I Receive My Payments?
Upon completion of the loan process, your lender will set up how you would like to receive your payments. According to the Department of Housing and Urban Development, you can choose from one of the following:
- Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence
- Term – equal monthly payments for a fixed period of months selected
- Line of Credit – unscheduled payments or in installments, at times and in an amount of your choosing until the line of credit is exhausted
- Modified Tenure – combination of line of credit and scheduled monthly payments for as long as you remain in the home
- Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower
Discuss these options with your mortgage lender to see which is the best payment option for you.
If you believe that a reverse mortgage is the right decision for your situation, then it is time to call Bank of the James. We offer competitively-priced home equity rates and our experienced team will guide you through the necessary steps to make the transition as smooth as possible. You can learn about our reverse mortgages here.