What is a reverse loan?
After paying to live in your home for years, wouldn't it be nice if the home started paying you?
Reverse mortgages enable homeowners 62 and older to convert part of their home equity into tax-free income. The lender provides income to the homeowner in one of various forms, such as a lump sum or monthly payments. The most popular form is a line of credit, allowing the borrower to draw funds as needed.
To qualify for a reverse mortgage you must live in the home and if you are part of a married couple, the younger spouse must be at least 62 years of age. You must either own the home outright or have a low enough mortgage balance that it can be paid off at closing with the proceeds from the reverse loan. In other words, the lender must feel there's enough equity in the home to justify paying you, possibly in a stream of income, for the rest of your life.
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. Generally, the more valuable your home is and the older you are, the lower the interest and the more you can borrow.
Make no mistake, with a reverse mortgage: you are a borrower. You are charged interest only on the proceeds you receive. Most reverse mortgages charge a variable interest rate as in an ARM or Adjustable Rate Mortgage. The interest compounds over the life of the loan until repayment occurs.
But unlike a traditional home equity loan or line of credit, a reverse mortgage doesn't require you to make payments. A reverse mortgage doesn't have to be repaid until you "no longer live there." That is, if you move out voluntarily, or you die. Either way, the lender is repaid with proceeds from the sale of the home. As long as you occupy the home, you must keep current on the taxes and insurance.
You may qualify for a reverse mortgage even if you still owe money on an existing mortgage. But the reverse mortgage must take on the first lien position, so any existing indebtedness must be paid off. You can pay off the existing mortgage with a reverse mortgage, money from your savings, or with help from a family member or friend.
People who secure reverse mortgages generally do it for one reason—to generate income. So naturally, they're concerned about how the new source of cash might affect other income such as Social Security or Medicare.
Eligibility for those benefits is unaffected, according to the National Reverse Mortgage Lenders Association. What's different is Medicaid. Any reverse mortgage proceeds you receive must be used immediately, or in the same month. Funds you retain into the next month would count as an asset and could impact Medicaid eligibility.
My uncle says he wants to "die broke." He figures that's the way to make the most of his assets and his time on earth. I'm not sure I agree with that logic. After all, you can't time your exit, and if the "broke" part comes early, you have a problem. Still, I plan to tell him, if you're determined to "use up" your assets later in life, one good way to do so is to obtain a reverse mortgage.
Leave a comment
There are many reasons to refinance your mortgage—some good and some not so good. If interest rates have dropped since you locked in your loan, and you aspire to pay less mortgage interest over time, you may have an excellent reason. If you're looking ...
By Trulia | 9 Comments
Got a real estate question?
Fair Housing and Equal Opportunity
Comments
Those who: own their home outright , or have a small balance on a home mortgage, single, no children, or those with children having no desire to leave the equity from the sale of their home to them upon their death.
Choosing the monthly payment plan, as opposed to a lump sum payment, may be an excellent plan for those who desire to generate more spendable income to improve their standard of living...
However, when considering any long term loan commitment it is wise to consult your financial advisor and tax consultant to enable you to make an informed decision.
-No longer have to make your mortgage payment ever again as long as you live in the property
-Receive supplemental income in the form of a monthly deposit into the homeowners bank account or receive a line of credit, or the most popular a lump sum at closing. NO monthly payments are made on the money received!
-NO changes are made on the title to the property. The title stays the same in the name of the homeowners
If you have parents, a coworker, freind, or maybe yourself that is 62 years old or older and would like more information I can be reached at 305-774-1185. My company website is http://www.leonmortgage.com
A reverse mortgage can be a great tool when appropriate. However there is required counseling by a HUD approved counselor. The counseling must be completed prior to the loan application and will cost anywhere from $50 to $200. The counseling can be done over the phone so if you would like so save a little money call around for fees. Go to https://entp.hud.gov/idapp/html/hecm_agency_look.cfm for a list in your area or call (800) 569-4287.
-Ben Stucker, Director of Senior Lending
http://www.villageseniorlending.com
-Joshua Christensen, Branch Mgr | Southwest Funding-Integrity
http://www.southwestfunding.com/jchristensen
I can see why someone would say "I die broke!" especially they don't have any hiers. But than like what another above asked "So what if you ran out of money before you die?"
Reverse mortgage may or may not be the answer that's why federal guidelines are requiring HUD counseling before following through.
Really so how does the reverse mortgage lender secure their interest in the property? Is there at least a Deed of Trust or what?
My concern is for the wife (in this situation) who is younger than her aging husband and had to sign a Quit-Claim Deed in order for her husband (30yrs.+ marriage) to get the reverse mortgage without any thought for his wife's future who will likely live 20-30 years beyond him.
Are my concerns for the wife's interests for a secure financial future for herself as serious as I a GUESSING they are.
The wife will be 62 in 3 years. She will then be added to the reverse mortgage and receive income (so she has been told).
What if her husband dies before she reaches 62. Will she have nothing?
I guess my question is should I force her to seek a professional financial adviser NOW (she absolutely refused my suggestion before the reverse mortgage was finalized).or is it "a done deal" and there is nothing that can/cold be done given it's the reverse mortgage has been drawing on the value of the home quite heavily already?
If "she stuck" .... How bad is her situation? Will she really lose out if her husband dies before she turns 62? Or, hopefully, my concerns for my lovely neighbors are unwarranted and she need not worry.
thanks. :)
Your home is worth, say, $150,000 and you owe $50,000. You have $100,000 equity in the home. You may only borrow up to say 75% of the equity.(easier math) So you can only borrow $75,000 out of which $50,000 (remainder of first lien) must be paid. You will be handed $25,000 lump sum, or it will be divided into a 20 year payment. The new lien on your home is now $75,000 (principal only) which usually is paid on death or volunteered move. Interest must be paid regardless.
You ended up selling your $150,000 home for $25,000 in pocket and the bank buys it for $75,000. (first lien) That extra $25,000 equity magically disappears.
What a deal! (for the banks and loan officers)
Don't forget the closing costs, the $200 "counseling" fees, document origination fees, appraisal, survey and other related costs that MUST be paid before the loan can be finalized. So you really sold it for LESS than $25,000...
I am homeowner with no heirs and am considering this option because I love the house I built and my neighbors. So it cost me some virtual money.
And for those really concerned about the fairness of the bank stealing that $25,000 there is a solution to that too.
Say your mortgage is with Scank of America, (this only works if you have no heirs) rack up at least $25,000 on a S of A credit card, I'd say more, you'll need cash for the minimum payments and then die with that balance or declare bankruptcy before you die. Then they will break even when they sell you house after you die.
That may sound harsh but sometimes you gotta be a dog in a dog eat dog world. Remember they already probably made upwards of $100,000 in mortgage interest off of you for taking on the risk of lending to you. So no need to lose any sleep in your well earned retirement. Everybody wins, not just the TBTF banks paid for by u and me anyway.