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Financing the Golden Years
Senior citizens, age 62 and older, now have additional cash flow alternatives when it comes to getting cash from their homes. Until recently, traditional home loans only offered the option of selling one’s house or borrowing against its equity.
Here are some important points to know when considering a reverse mortgage:
Mandatory Counsel: In order to ensure that homeowners are fully aware of the financial ramifications of obtaining a reverse mortgage, they must undergo counseling with an unbiased third party before completing a loan. HUD and AARP oversee a network of counselors who can provide this service, and it should be offered for either a nominal fee or at no charge.
Tax-Free Income: One of the advantages of a reverse mortgage is that the money borrowers receive will not be taxed. The amount obtained depends on several factors including-
Cost: The cost of a reverse mortgage varies considerably from one type to the next. However, homeowners can typically use the money received to offset the loan fees. The costs will be added to the loan balance and must be repaid with interest once the loan terminates.
Repayment: Reverse mortgages do not require any payment as long as the borrower(s) remain in the home. Should the borrower(s) pass away, sell the home, or permanently relocate, then the loan would be due in full, along with the interest and additional costs. If two borrowers are on the loan and one dies, the loan would not be due, since of them still occupies the home.
Home Equity Conversion Mortgage – The Federally Insured Loan The most common type of reverse mortgage is the Home Equity Conversion Mortgage, otherwise known as the HECM mortgage. This is the only reverse mortgage program that is federally insured and backed by the U.S. Department of Housing and Urban Development (HUD). This type of reverse mortgage is popular for a few reasons:
- Ability to choose the interest rate.
Borrowers can select one that changes annually or one that changes every month.
- Several payment options.
Homeowners may receive monthly loan advances for a fixed term or for as long as borrower lives in the home. Borrowers may also choose to receive a line of credit or
- The loan can be used for any purpose.
With a HECM, borrowers don’t have to designate the loan to a specific use; the funds can be applied to anything the borrower chooses.
This is one of the most attractive features or a HECM. This plan protects the borrower by guaranteeing continued loan advances even if the lender defaults.
Sell or Stay?
The main reason people choose a reverse mortgage is to gain financial independence and maintain an adequate standard of living without leaving their current home. The best way to decide if a reverse mortgage is the right choice is to compare it to the other option of selling the home. To do this, homeowners must ask themselves three questions:
1. How much cash can I get by selling my home?
2. How much will it cost to buy or rent a new place?
3. Is it worth moving now, or would I prefer to do something else with the money?
Perhaps these will confirm what the homeowner has known all along… there is no place like home and where they live now is the best place to be.
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MortgageProLI.com provides our clients an un-bias opinion in deciding whether a Reverse Mortgage is right for you. Our Mortgage Specialists possess all the resources and expertise that are needed in choosing the program that fits your specific situation.