Reverse Mortgages…How Do They Work?
The reverse mortgage program has helped thousands of older Americans stay in the homes they love and improve the quality of their retirement. One of the most common questions about the program is how does it work? Here is exactly what you need to know about the reverse mortgage program and if it is right for you.
What is a reverse mortgage?
A reverse mortgage, also known as a HECM (Home Equity Conversion Mortgage) is a government insured financial tool that was created specifically for homeowners 62 and older. It allows them to pay off their current mortgage (if they have one) and use any remaining tax-free money for anything. The reverse mortgage can help relieve the stress of monthly bills or increased medical expenses. It can help you gain financial flexibility you want to be able to live the retirement you want to live.
How do you qualify?
To qualify for a reverse mortgage must be at least 62 years old, live in your home as your primary residence and have sufficient equity in your home. That’s it. Currently there are no income requirements or credit checks in order to receive a reverse mortgage.
Who is it for?
The reverse mortgage program is for any homeowner of the age of 62. The program works for homeowners who have a mortgage and for those who own their home outright.
What are the loan options?
At One Reverse Mortgage you have three different loan options to choose from:
- HECM Standard Adjustable
- HECM Saver Adjustable
- HECM Saver Fixed
Each program has its own unique benefits so you can choose one that best fits your situation.
HECM Standard Adjustable -Provides more flexibility in how you access your proceeds and the rate will move with the market. The options to receive your proceeds are lump sum, monthly payments, a line of credit or a combination of the three.
HECM Saver Adjustable -This option provides the lowest up front mortgage insurance costs and allows a smaller amount of proceeds than with the HECM Standard Adjustable. If you are looking for lower cost reverse mortgage option and do not need to access as much of your equity than the HECM Saver is the option for you.
HECM Saver Fixed – Provides a fixed interest rate for the life of the loan. This option gives you the lowest up front closing costs and allows slightly less available proceeds than the Standard Adjustable option.
Ok I received a reverse mortgage, how does it work now?
Once you receive your reverse mortgage you will get your proceeds. Depending on which program you have chosen will determine how you receive your proceeds. You will just be required to maintain the home and stay current with taxes and property insurance. You can live in your home for the rest of life and not having to worry about making another required mortgage payment.
When you no longer occupy the home is when the loan becomes due. The loan can be paid off in a couple of ways:
- The home is sold and the proceeds are used to pay off the reverse mortgage
- Or your heirs can pay off the reverse mortgage and keep the home. Your heirs do not assume your debt, they have the option to keep the home through purchase or re-finance.
The reverse mortgage program has been described as a complex loan. While it is different from a traditional mortgage it is easy to qualify and easy to understand once you have the correct information.
If you still have questions about the program or wondering if it is right for you, give us a call! A licensed professional will discuss your financial goals and determine if the reverse mortgage program makes sense for you and your retirement.
Kristen Curzytek is a writer for Retiring Wise. Give us a call at (800) 401-8114 to talk to one of our licensed professionals. They can discuss your financial situation with you and determine if a reverse mortgage makes sense for you and your financial goals.