Reverse mortgages have increased in popularity in the past
few years. Economist report that due to the increase in
housing cost, the amount of money people are saving in their
401(k) and savings accounts have been decreasing.
Due to the recent boom in the real estate market more and
more seniors are looking to cash in on their home equity.
People are finding themselves equity rich and cash poor.
It is not unusual to find people living in million dollar
homes yet they are below or near poverty level in monthly
income.
Fortunately reverse mortgages are available for this
specific reason. Before you proceed with a reverse mortgage
do your research and make sure it is exactly what you want
to do.
The FHA and the Department of Housing and Urban
Development have taken over the responsibility of
administrating reverse mortgages.
One of their first changes, was to regulate and control
the interest rates which lenders can charge for the reverse
mortgages. All reverse mortgage lenders within the United
States will have the exact same interest rates. When
choosing a lender do not concern yourself with comparing
interest rates.
Reverse mortgage interest rates are adjustable rates which
are tied to very conservative indexes, usually the 1 year
treasury bond rate or the LIBOR index. The rates very
moderately and usually will not have much effect on your
mortgage.
A reverse mortgage is still a home mortgage utilizing the
equity in your home as collateral. It is totally different
mortgage compared to the mortgage you had when you
initially purchased your home. Here are a few facts about
reverse mortgages.
The Bank Pays You Each Month:
Yes, that's right, you will receive a monthly payment with
a reverse mortgage. There are basically three options to
receiving your payments. You can receive a one time lump
sum, you can receive payments at amounts and times you
request, and most common method is to receive a regular
monthly payment.
You Still Live in Your Home:
Most seniors do not want to change dwellings at this
point in their lives, hence the main reason for a reverse
mortgage. You will stay in your home while drawing monthly
income against the equity. In fact it is a requirement
that you retain this home as your principal residence. You
can still have the lake home or the vacation home, you just
need to maintain this residence as your primary home.
You Retain 100% Ownership Of Your Home:
You will keep all the rights of ownership which you had
prior to the reverse mortgage. This is still your home and
you can do anything to it or with it that you normally
would. It can be remodeled, sold, or will it to your
children.
However, should you sell your home or die, you will have
to pay back the bank the amount of payments you have
received, plus interest, before the balance can be
distributed to you or your surviving spouse or the estate.
Your Principal Amount Increases With Each Payment Received:
This is still a mortgage and the amount you receive must
be paid back. This is usually done when your heirs sell
your home after you and your spouse no longer live there.
After you pass away the monthly payments will stop, however
the principal amount and the maturity date of the loan can
not be determined until the actual day the loan is paid
back.
You Can Never Owe More Than The Value of Your Home:
If you choose a reverse mortgage backed by the Federal
Programs, you can never borrow more than the value of your
home. You will never be forced to liquidate other assets
to repay the loan.
Summary
If you have equity in your home and you are beyond the age
of 62, you can receive a reverse mortgage which will
provide you the additional monthly income needed to
supplement your retirement income. You will still own your
home and continue to live there as you do now and your
obligations to the lender will be satisfied by the equity in
your home.
Why in the world would you apply for any type of Home
Equity Loan before researching the necessary information
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