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How A Reverse Mortgage Works
Background:
A special loan for homeowners who are age 62 or
older, reverse mortgages were first established
by the Housing and Community Development Act of
1987, as part of the U.S. Department of Housing
and Urban Development (HUD).
What is a Reverse Mortgage?
A reverse mortgage is a loan borrowed against
your property's value and does not have to be
repaid at a predetermined date. The loan
continues (without any payment from you) as long
as you:
- Live in the home as your primary residence.
- Make necessary home repairs.
- Pay your property taxes.
In short, it's a loan in reverse, where the
lender or bank pays you, enabling you to turn
the value of your property (single family home,
condos and manufactured homes , etc.) into cash.
You or your estate will pay the money back plus
interest when you permanently move out of your
home.
In addition to using a reverse mortgage on
your current home, you now also have the option
of using a reverse mortgage to finance the
purchase of a new home. If you are considering
moving, we can help you learn more about Reverse
Mortgage for Purchase.
Important notes:
- You always retain title and own your home.
The bank or lender does not own your property.
You continue to own and hold title to your home.
- You don't have to have your home paid off to
qualify. There are no income or credit criteria,
like there are with refinancing a home mortgage,
or taking out home equity lines.
- When you move out of your house, the maximum
amount that you will owe is the current market
value of the house. If the amount advanced plus
accrued interest is less than that value, then
that is all you will pay. The last step of our
Reverse Mortgage Cash Calculator will show you
the entire picture of your reverse mortgage and
home value. You can also adjust home
appreciation rates in the calculator to reflect
trends in your part of the country. Even if the
money you have received has exceeded the value
of your home, the insurance premium protects you
from paying more than the current market value
of the home. This protection is guaranteed by
the Federal Housing Administration (FHA) and
paid by you and other reverse mortgage
borrowers.
Loan Amount:
Your cash amounts will be determined by the
following factors:
- The appraised value of your home - or the
maximum lending limit. Since you are borrowing
against the property, your home's appraisal is a
critical part of the process.
- Your age: a higher age will allow you to access
a higher loan amount.
- The current interest rate, and whether you
select a monthly or annual rate feature.
- The federally insured home equity conversion
loans offered through HUD will have a lower
lending limit than those offered by private
reverse mortgage lenders, such as Financial
Freedom or Everbank.
How you get your money:
Reverse mortgages enable you to turn the value
of your home into cash to fund your retirement.
Reverse mortgages can be custom tailored to your
needs. Our Reverse Mortgage Cash Calculator
allows you to do that in the privacy of your own
home without the hassle and intrusion of meeting
in person with a broker, before you're really
ready.
You can take cash out of your property:
- In a single lump sum upfront amount.
- As a regular monthly cash advance.
- Held in reserve as a credit line account that
lets you customize when and how much is paid to
you - changing over time as your needs change.
- As a combination of these three payment methods.
Reverse Mortgage Costs:
All mortgages have costs, but since the lender
makes payments to you, the cost structure of a
reverse mortgage is slightly different than with
a forward mortgage. However, the cost categories
are the same: interest rate, closing costs
(similar to forward mortgages), and lender
servicing costs.
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