A reverse mortgage is an instrument offer for those 62-year-oldhomeowners or older which would allow them to turnportion of the equity in their homes into money.
The main idea of a reverse mortgage at SunWest Mortgage is to offer a helping hand to retired people with limited income by using the accumulated wealth in their houses to cover basic living expenses and the payment for health care.
They are called reverse mortgage due to the fact that the money is not paid to the lender but it is given to the borrower instead; so it is completely opposite than a standard mortgage. Another difference with traditional mortgages is that there are no monthly payments to make; meanwhile,borrowers are still responsible for the taxes and insurance payments on their properties and they must continue using the place as their main residence for the span of the loan.
This concept is hard to understand or explain by even those with enough experience in the field. To make it easier to understand, a comparison between this sort of loan and the home equity loan is necessary to be made. Essentially, a reverse mortgage is a home equity loan, both of them are designed to be required by 62-year-old people or older and have built up substantial home equity. The big difference with the reverse mortgage and the other types of loans is the fact that the borrower receives from the lender and does not need to make payments back to the lender so long as he or she lives in the home and continues to lives in the home and fulfill his or her basic responsibilities.
As with the majority of loans, this sort of credit must be repaid. The loan is done once the borrower sells the house or dies. Of course, the borrower may also choose to pay the loan at any time. Most of the cases, a reverse mortgage is paid at the moment the property is sold. An important point to highlight is the fact that this mortgage cannot exceed the value of the home. For example, if a house was sold for $130,000 and the mortgage was $150,000, the borrower does not owe the difference. But if the house is sold for more than the value of the property, the equity belongs to the borrower or the borrower’s state.
Currently, Home Equity Conversion Mortgage (HECM) is the responsible for almost all of the reverse mortgages. Ruled by the Federal Housing Administration (FHA), the loans have the government guarantee. So in case of not fulfilling with the payment, there is no need to worry. The government protection, since the loan is offered by a private company, deals with two aspects. Firstly, the government guarantees that all the payments will be received by the senior citizen. On the second place, the FHA agency protects the borrower and the borrower’s estate form ever owing more on the loan that the worth of the property. In cases where the remaining of the debt exceeds the value of the home, the agency covers the difference.
Now that it is clear the concept, to apply for a Reverse Mortgage; these are the points to take into consideration to classify for one:
- “62 years of age or older
- Owning the house and use it as the primary residence
- The house is a single family, a multi-family (up to 4), or an approved condominium or manufactured home.
- The total ownership of the home or only have a small amount left to pay on the existing mortgage.
- The property is in good condition prior to taking out the loan.”
The borrower must meet with a HUD approved counselor before obtaining a reverse mortgage to establish if the loan is suitable for you necessities. The counseling sessions would help you understand the way the loan works and the different options that are available.
Besides all the steps mentioned above, a borrower must also go through a financial assessment to get a mortgage of this sort. This assessment assures that the borrower can pay for taxes, homeowner’s insurance, basic home maintenance and fees for the Home Owner’s Association (HOA) if they are applicable.
Once all these steps are covered, it is important to clarify what is the amount of money that could be obtained by this loan. Factors such as age, house value, and the interest rate offered would establish the amount of the mortgage.
Generally, the amount of money will be bigger if some of the following characteristics are covered:
- Being older, an 80 year old person will be able to borrow more than a 62 year old if the rest of the factors are the same.
- If the property is more valuable and/or the amount of home equity is higher.
- A fall on the interests, a 4% rate of interest will allow to get more than with a rate of 6%
There are several benefits with this loan and it will provide all the needs a senior would require while he or she is still living in the house or until the time of selling the property. A reverse mortgage is a very good choice to be taken into account when income is not enough at the golden years.