With so many things said about reverse mortgages, it may still be confusing as to what they really are. What are reverse mortgage loans? Do you need one?
Understanding Reverse Mortgage Loans
Reverse mortgage loans refer to a home equity loan designed specifically for older homeowners and for those that do not want to write a check each month to pay off the mortgage. In the place of those payments, the loan repayment happens when the borrower dies or moves out.
Most people will choose reverse mortgage as their last income source. Many homeowners have found this setup as an excellent retirement planning tool. This loan first came out in 1989. As the first reverse mortgage that is federally insured, this type of loan is also called the home equity conversion mortgage (HECM). Typically, people aged 62 and above can use a part of their home equity and not move out.
Who Can Benefit from Reverse Mortgage Loans?
There are certain types of people who can benefit more from this type of loan than others. These include those:
- that don’t plan to change residences
- that can maintain the cost of using their home
- that want to tap into their home equity to have extra money for other needs
There are also others who choose to get a reverse mortgage to settle their present mortgage and to get better cash flow. If you have an immediate need to pay a debt or have emergency expenses that need to be settled immediately then this can be the right loan for your situation.
Under this type of loan, the bank will pay the borrower throughout their lifetime calculated based on the built-up equity. The remaining loan does not need to be paid until the borrower moves out of the property, sells the property or dies.
Factors the Affect Loan Amount
The amount of loan you can get are based on the following:
- home value
- interest rate
- age or the age of the youngest spouse
- Federal Housing Administration’s HECM mortgage limit of $636,150 or lesser of appraised value
You can be eligible for a reverse mortgage if you own your property outright or if you have a low mortgage balance that can be settled using the reverse loan proceeds. The property you have should also be used a primary residence. New regulations have made it more difficult to obtain large loan amounts but generally the more valuable your home and the older you are, the larger the amount. If you want to know more about reverse loan options then talk to a Columbus OH Mortgage Broker.