The term reverse mortgage is one that is not familiar to every person. It can confuse even the most seasoned investor that knows what a traditional mortgage is for a property. FHA regulates the reverse mortgage program and it is not available to all that apply. The basic definition of what is a reverse mortgage is simple to understand. The actual process though is not. A reverse mortgage could be the right choice for you if you own a home and want to free up money to make other investments. Not everyone can live debt-free shortly before or after retirement.
A reverse mortgage could help give you the cash that you need to let you invest where and how you want.
Taking out the available equity in a home that you own is the basics of a reverse mortgage. Unlike a home equity loan, a reverse mortgage continues to pay you during the time that you remain inside of your home. Most of the payments in a reverse mortgage that are paid each month to you are structured. The structure of the payments depend on the approximate amount of equity you have available and your current age. Those that are 62 years might receive less in structured payments compared to those past age 65.
Some benefits of a reverse mortgage include:
• No more mortgage payments
• No repayment of monthly checks
• Cash can be reinvested in securities or investment property real estate
• Bad credit not a factor during approval
• Need no separate trust or family planning attorney to qualify
• No debt is passed to heirs after death
The amount of money that can be awarded in a reverse mortgage can vary based on several factors. An appraisal is usually required of your home and surrounding market to determine the current market price. The age of the home is considered as well as any improvements that have been made annually. An assessment can be reviewed by the company that can grant your Home Equity Conversion Mortgage (HECM) with the current maximum payout being $625,000. If you are older than 62 and have more equity in your home, it is likely that you can receive the highest payout currently available.
How you choose to receive payments must be determined by you when the reverse mortgage is approved by an HECM lender. There are generally four ways that you can take out the equity that you have built up in a property.
• Lump sum payment
• Line of credit
• Structured monthly payments
• Modified agreement that combines line of credit with monthly payments
Every lender makes money when they give money. A reverse mortgage is no different. A lender does not have a set amount of fees that are charged and each is free to assess the cost of a reverse mortgage appropriately. The costs involved can include closing costs to process the mortgage, escrow fees, title search fees, mortgage insurance and HECM lender application fees. Anyone that is interested in obtaining a reverse mortgage should always check references and company information from a lender.
FHA does provide a list of approved reverse mortgage lenders.