What is a reverse mortgage?
A reverse mortgage allows homeowners over the age of 62 to access their home equity (the difference between a home’s value and the amount that is owed), which they have built over the years.
There are several reasons why you may want to consider a reverse mortgage. You may want to:
For a reverse mortgage to work, you would use a portion of your home equity (which you’d receive as a new loan) to pay off your existing mortgage balance (if necessary).
Though a reverse mortgage eliminates your monthly loan payments, you will still be required to pay property taxes, homeowners insurance, and HOA dues (where applicable).
You will not need to make monthly payments because the new reverse mortgage balance won’t become due until the last remaining homeowner passes away, sells the home, moves elsewhere, or neglects to pay the required taxes and insurance.
If you choose not to make mortgage payments, as most reverse mortgage borrowers do, the accrued interest is simply added on to your loan balance.
If you ever decide to sell or to pass your home on to your heirs, the reverse mortgage balance (all principal and accrued interest) can simply be paid off by your buyers or your heirs
You or your trust will continue to hold title to your property, with complete control over it.
These proceeds are “borrowed money” and not “earned income,” and thus non-taxable.
When your heirs inherit your property, they will have the option to pay off the reverse mortgage in order to retain any remaining equity. If, by chance, the reverse mortgage balance exceeds the value of the property at the time of inheritance, your heirs will NOT be liable for that debt because reverse mortgages are “non-recourse.” This means that lenders cannot go after any borrowers or property owners for “deficiencies” or amounts owed that exceed the value of the property.
Reverse mortgage borrowers do, however, need to continue to make their HOA, Insurance and Property Tax Payments. Missing these payments can put ownership at risk.
Connect with one of our mortgage experts.
The Home Equity Conversion Mortgage is one of the most common reverse mortgages available and is backed by the Federal Housing Administration. This type of mortgage permits you to use the money for whatever you want.
This type of loan is typically the best option available, but there are some limiting factors. For example, if your home is worth more than $726,525 (the current max loan limit for HECMs), then you may be better off seeking other types of financing – like a jumbo reverse mortgage.
There are two types of HECM loans available: a fixed-rate loan or an adjustable-rate mortgage (ARM). The interest rate for the fixed-rate loan will remain fixed for the entirety of the reverse mortgage loan’s life, while the ARM’s interest rate will fluctuate up and down over the life of the loan.
Each loan type has its advantages and drawbacks – to learn what type of reverse mortgage loan is right for you, please talk to a JVM mortgage expert.
Below are the basic eligibility requirements for a reverse mortgage: