Reverse Equity Mortgage
A reverse equity mortgage is a program by the U.S. Department of Housing and Urban Development (HUD) that allows seniors who are age 62 or older to withdraw money from their home’s equity. There are certain requirements that must be met to be eligible for the reverse equity mortgage. The person who wants to reverse equity mortgage must own the property or have a small balance on a mortgage. This balance must be able to be paid in full when the reverse equity mortgage is paid out. They must also live in the house full-time, and they must not be delinquent on any federal debt. There are no limits on the home owner’s income, so a person who has not yet retired is eligible to take out this mortgage.
The advantage of this reverse equity mortgage is that it does not need to be repaid. The homeowner is actually take money from the equity or value of the home. Several types of property are eligible, including single family homes and apartments with up to four units, as long as the owner occupies one of them. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible. Repayment of the loan is not needed, as long as all of the requirements are met. The company supplying the loan gets their money back, plus interest, when the home is sold or if the homeowner dies. The remaining equity left in the home is paid to the homeowner or to their heirs.
This type of loan helps those who do not have cash available for home improvements, hospital or medical bills, or other emergency situations. If social security is their only income, this loan may be the only way that they can afford to pay their property taxes and upkeep on the house they may have lived in for years. Those with a low income and who have outstanding debt can use this loan to survive in their senior years. They may not qualify for a home equity loan or second mortgage if they have more debt than income. Additionally, home equity loans require monthly payments that might not be possible for those who are retired. Reverse equity mortgages were designed to help older people without much money in savings or retirement funds, stay in their homes.
The homeowner can receive funds from the loan in different ways, such as monthly payments that will be paid as long as at least one borrower lives and stays in the property as their main residence. A term mortgage is also possible. With this plan, equal monthly payments are made for a period of time that has been chosen. Another option is a line of credit that allows the homeowner to use their home equity at their discretion when they need cash for any reason. A modified tenure is the plan that combines monthly payments with a line of credit, and a modified term mortgage combines a line of credit with monthly payments for a fixed time frame.
Homeowners need to remember that even if they have a reverse equity mortgage, they are still responsible for paying property taxes and for the upkeep of their property because they still own their property. Another consideration is that $6,000 or more in closing costs are often charged by the lender, and this is money lost from their equity. Also, the additional expense of mortgage insurance is usually required by the lender to ensure that they are paid the amount loaned to the homeowner when they move from the house or die. Interest rates for these loans are also usually higher than for traditional mortgages, and they can be anywhere from 3.6 percent to 5.2 percent.
