A source of income many retirees do not think about is the equity in their homes. Most people think you have to sell your home or take a mortgage loan out to gain access to your equity. That isn’t the case, there is something called a reverse mortgage which allows you to gain access to your equity without having to pay a mortgage loan off. With current mortgage rates on 30 year mortgages around 4.00% a reverse mortgage is even cheaper in the long run. If you are 62 or older, or about to reach that milestone, you may find yourself considering a reverse mortgage to add to your retirement income or meet health care or other financial needs.
It is important to understand the terms, risks, and costs before you sign a reverse mortgage contract. Make sure to consider alternatives to reverse mortgages. Today’s mortgage rates are a good reason to get a reverse mortgage loan. A reverse mortgage is a mortgage loan secured by your home that lets you receive payments from the lender—either over time or all at once—based on the value of your home at the time of the mortgage loan and current bank mortgage rates.
As you receive payments, these amounts are added to your mortgage mortgage loan balance. Mortgagelendingrates are charged on the outstanding balance, so even if you do not receive any further payments from your lender, the mortgage mortgage loan balance continues to increase.
Generally, to obtain a reverse mortgage, you must be a homeowner at least 62 years old, must use the home as your primary residence, and must have either no current mortgage or a mortgage balance low enough that you can pay it off with funds from the reverse mortgage.
And the differences can be important. For example, most reverse mortgages are made under a Federal Housing Administration (FHA) program. These mortgage loans (called Home Equity Conversion Mortgages or HECMs) have government insurance that protects not just the lender, but also the borrower. If the lender becomes unwilling or unable to make payments due to the borrower, the government steps in to make them. Other reverse mortgages do not have this guarantee.
hat depends on many factors, including your age, the value of your home, and applicable mortgage rates today at the time you obtain the mortgage loan and over the course of the mortgage loan. Generally, the amount of your mortgage loan will be larger the older you are, the more valuable your home is, and the lower that applicable mortgage rates are.
Reverse mortgages can be very flexible about this. Depending on the type of mortgage loan you get, you can take out the funds in fixed monthly payments that last either for a set period of time or for as long as you stay in the home, as a line of credit that permits you to take out funds as you see fit, in a single lump sum (or a single draw on a line of credit), or in some combination of these options.
Homeowners struggling to make payments on their mortgages and other debts should beware of con artists and scams that promise to save their homes and eliminate their debts.
These so-called foreclosure or mortgage consultants often use public notices or lists of distressed borrowers purchased from private companies to find their targets. They may offer to “prevent” foreclosures or “rescue” desperate homeowners from foreclosure through advertising, e-mail, phone calls, or in person.
Financially troubled homeowners can avoid foreclosure prevention scams by working with housing counselors approved by the U.S. Department of Housing and Urban Development (HUD). Assistance from HUD-approved housing counselors is free, and homeowners can reach them by calling 1-888-995-HOPE (4673) or visiting makinghomeaffordable.gov.