After years of hard work and investment, you have earned the right to enjoy your home. If you are 62 or older and need money to pay off your mortgage, supplement your income, or cover healthcare costs, a reverse mortgage may be an option for you. With a reverse mortgage, you can cover a wide range of expenses and even retire early without having to worry about paying for health care costs before Medicare kicks in, all without losing your home.
What exactly is a reverse mortgage? A reverse mortgage is a loan that allows homeowners aged 62 and older to convert a portion of their home’s equity into cash until they die, sell their home, or move. It is intended to help retirees with limited income to cover basic monthly living expenses and health care costs.
In a reverse mortgage, the person already owns the home, and borrows against it, receiving a loan from a lender. Most reverse mortgage loans are never repaid by the borrower. Interest and fees are added to the loan balance each month.
As long as the borrower lives in the home, they are not required to make any monthly payments towards the loan balance. However, the borrower must remain current on property taxes, homeowner insurance, and homeowner association dues (if applicable).
The borrower is not required to pay back the loan until the home is sold or vacated. Upon moving or dying, the borrower’s heirs sell the property in order to pay off the loan and any excess proceeds are paid to the borrower (or their estate). When clients’ family members inherit a home, Hawk Mortgage Group is here to help.
Unlike a traditional mortgage, the lender pays the borrower. Furthermore, the homeowner is not required to make any loan payments. A reverse mortgage loan, like a traditional mortgage, keeps the title to your home in your name. A reverse mortgage, just like traditional mortgage, uses the home as collateral.
It is the most common type that is insured by the Federal Housing Administration (FHA). HECMs are available to homeowners who are 62 years old or older who own their homes outright or have paid off most of their mortgages. Retirees on a fixed income who need income from their homes should consider HECMs.
A HECM can be repaid in a lump sum, as a monthly payment, or as a line of credit. The main drawback is the cost. In reverse mortgages, the lender typically charges a higher interest rate because of the long repayment period.
Proprietary reverse mortgages are private loan that allows you to convert a portion of your home’s equity into cash. They are best used by borrowers who don’t qualify for HECMs. They are not guaranteed by the government and are not regulated by the Federal Housing Administration or HUD because they are private loans. As lenders can lend amounts above the federal limit, they are also known as jumbo reverse mortgages.
As they’re not federally insured, most proprietary reverse mortgages don’t require upfront mortgage insurance or monthly mortgage insurance premiums. These loans often come with higher interest rates and fees, since the lender needs to be compensated for the increased risk.
Single-purpose reverse mortgages are also not federally guaranteed. They are usually provided by local governments or nonprofit organizations for a single purpose and they are the least expensive option.
From unpaid property taxes to home repairs, it is meant to cover a one-time expense but it cannot be used for ongoing expenses or to rebuild retirement assets, unlike the other two options. The proceeds are tax-free and no monthly payments are required. The borrower won’t need to use much equity in their home.
Hawk Mortgage Group in Bel Air, Maryland is ready to sit down and assist you in deciding the proper path to freedom. Serving Maryland, Delaware, Pennsylvania, and the DC area, Hawk Mortgage Group will help you to outline the process associated with reverse mortgage and what mistakes to try to avoid.
725 N. Hickory Avenue; Suite 200
Bel Air, MD
Office : 443-619-7900