I have another post about Reverse Mortgages entitled, “Reverse Mortgage – Things to Know” but it is rather lengthy so I decided this one will be much more concise and hopefully, an easier read.
I admit that I was skeptical of Reverse Mortgages. Every time I heard the two words, I tuned out immediately. But a local attorney, Jim Johnstone of McCaysville, Georgia held a workshop and I decided I should go. I really thought that my suspicions would be confirmed in this workshop and that would be the end of that. Actually, I learned quite a bit and found out how first impressions can be very misleading. I am glad I have gotten the straight of it so that I will be of more benefit to future home buyers who may want to take some of their proceeds from a reverse mortgage and invest in a second/vacation home. Something else I learned about these mortgages that I didn’t know – you can spend the money on virtually anything you want which means a second home if you so desire.
Now let’s cut to the chase:
What is a Reverse Mortgage? Unlike traditional home equity loans, the Reverse Mortgage is a home loan that allows seniors 62 years of age or older to use the equity in their home. It does not require payment of any kind until the last surviving borrower permanently leaves the home.
The Federal Housing Administration (FHA) Home Equity Conversion Mortgage or (HECM) is the most popular and is a government insured loan. A HECM has no payments, it is non-recourse (meaning the final amount of the loan will never exceed the value of the home) and it’s a tax free line of credit – Tax Free! Also, closing costs are included in the financing of the loan. There may be a fee to initiate the loan, estimate $300.
What are the Requirements? A homeowner and all borrowers are at least 62 years old. There are no income or credit requirements. No loan to value, debt ratio issues.
How Much Money Does the Homeowner/Borrower Receive? Three factors determine the amount of the eligible equity which may be converted to cash. They are:
- Age of the youngest borrower
- Value of the home
- Current interest rate
The older the borrower, the higher the value of the home, the more money the borrower gets.
How Safe are Reverse Mortgages? The homeowner/borrower retains ownership of the home and the lender never owns your home. The loan is non-recourse and protects heirs from taking money out of their pocket for repayment of the loan.
Will the Homeowner/Borrower Ever Be Forced Out of Their Home? NO! As long as a one of the borrowers continues to live in the home, adequate property insurance is maintained, the real estate taxes are paid annually, and the home is kept in good condition, just like any traditional mortgage except you cannot be forced out of your home for non-payment of the loan because there are no payments to make.
How Can a Homeowner/Borrower Receive the Money? The choice is completely up to the borrower. Receive it all in a lump sum, in regular monthly payments, or place the money in a growing line of credit. Or combine all three options.
Who Gets the Home when the Homeowner/Borrower Dies? The estate will receive the home upon the borrower’s death, just like any traditional home loan. Heirs have the choice of either keeping the home and paying the lender ors selling the home and using the proceeds to pay the Reverse Mortgage. All remaining equity is paid to the estate after the Reverse Mortgage is satisfied.
Will the Reverse Mortgage Effect the Homeowner/Borrower’s Taxes or Social Security? NO! Equity received from a Reverse Mortgage is a loan and not income and is NOT subject to income tax and will NOT affect social security benefits or Medicare.
Jim Johnstone, Real Estate Attorney in McCaysville, Georgia serving the Blue Ridge area of the North Georgia Mountains is a Reverse Mortgage Advisor and can be contacted at 706-455-1012.
American Reverse Mortgage Corporation located in Ocala, Florida phone toll free: (888) 370-6620. You may request a free information package failored to meet your specific financial needs with no obligation.
This post was written for information purposes only and Donna Yates, Realtor with Mountain Investments of North Georgia in Blue Ridge is not a Reverse Mortgage Advisor nor a spokesperson for Reverse Mortgages. Donna nor Mountain Investments of North Georgia are suggesting that you should secure a Reverse Mortgage.
Please be wise and prudent and do your own research. It is fair to note that HUD will provide a Reverse Mortgage counselor to advise and guide a borrower through the entire process.
Your comments are welcomed. If you have any questions, please let me know by clicking the comment link below to open up a comment box. I’ll be happy to write a post about it just for you! Keep your comments clean, please. Thankyou.
The information in this post is deemed reliable but is not guaranteed.