If you are happy with your home but want more money to live in retirement, the reverse mortgage may be for you. If you are rich at home but poor in cash, an inverted mortgage enables you to tap into the equity in your home while you live in it.
However, if you are like most homeowners, you have worked hard for many years to get rid of the mortgage and “compensate” your dar home to change that process and pay off the remaining debt on your home. The thought of recreating is disturbing. Reverse mortgages are loans that some people think of. And most of today’s reverse mortgage borrowers are low-income, single seniors who have run out of money to support themselves.
Therefore, it is not surprising that people who do not fully understand reverse mortgages often have negative perceptions about working. Your first reaction maybe, “I shouldn’t be forcibly evicted. I can pay more than the value of this house.”
Keep yourself away from these thoughts. You will not be forcibly evicted from your home and will not reimburse you(for your heirs) for more than the value of your home. Federal law requires reverse mortgages to be non-performing loans, which literally means that the home’s value is the only asset that can tap to pay off the reverse mortgage debt balance. Rarely, when a home’s price falls below the amount owed on a reverse mortgage, the lender has to absorb the loss.
Some reverse mortgages are good, many are modest, and some are simply bad. The best reverse mortgages are worth your while. A good reverse mortgage enables you to tap your home equity with the price and increase your retirement income. So, if you have to pay bills, buy some new carpets, need to paint your house, or feel like eating out and traveling, a good reverse mortgage can be your salvation.
The basics of reverse mortgages
So what exactly is a reverse mortgage, and how does it work? Well, as the name suggests, an inverted mortgage replaces the traditional mortgage process. Think about it when you bought your first home. Unless you have a generous and wealthy relative, you may have to raise money for payments and never-ending expenses. And then you may have been saddled with something like a mountain of mortgage debt.
Each month, thereafter, you send a check for a monthly mortgage payment with the mortgage lender. In the early years of your mortgage, a large portion of these monthly mortgage payments went to pay interest on your outstanding debt balance. Still, each small amount of payments went to the principal to reduce, or in other words, In reducing the debt balance. (As the years go by, the balance of the debt should be repaid faster and faster, after all, you will not repay your mortgage.)
An inverted mortgage reverses this process. When you take out a mortgage, the mortgagee usually sends you a monthly check. Just imagine! You can spend the check any way you want. And, because the check represents a debt, the payment you make is not taxable.
Because the reverse mortgage lender pays you more, you accumulate the balance of the outstanding debt. You don’t usually have to repay your reverse mortgage loan until the home is sold (and then when you move out of the property, with most reverse mortgage programs, or repay the loan and interest accrued after the sale). Happens).
Reverse mortgage payment options
The whole point of taking a reverse mortgage on your home is to get money from the equity you have in your home. How much can you tap? This amount depends largely on how much your home is worth, how old you are, and how much interest and other fees are charged to the lender. The higher your home’s value, the older you are, and the higher the interest rates and other fees you receive from lenders, the more you should realize from the reverse mortgage.
You can decide how you want to receive your reverse mortgage:
- Monthly: Most people need a monthly income to stay afloat. Thus, the selected reverse mortgage payment option is usually monthly. However, not all payment options are created equal. Some reverse mortgage programs have a default number of years. Special promises monthly payments and other programs pay as long as you live in your home or for life. Not surprisingly, if you choose a reversible mortgage program that pays you back for a lifetime, you will have a fixed number of years. Less monthly than a paid program, maybe a good deal less.
- Line of Credit: Instead of receiving monthly checks, you can easily create a credit line from which you can make money by writing checks whenever you need income. Since interest does not start accruing on a loan unless you actually borrow money, the advantage of a credit line is that you pay only what you need and what you use. Are If you have fluctuations and irregular needs for extra money, a linear loan may be for you. Because you have to take the initiative to be attracted to the linear risk, some healthy seniors have a hard time investing and spending money. The credit line size is determined either when you close your reverse mortgage loan or increase over time.
- Lump-sum: The least lucrative type of reverse mortgage is a one-time option. When you close such a reverse mortgage, you receive a check for the full amount for which you were approved to borrow. Paying a small amount usually only makes sense if you urgently need enough cash for a purpose, such as giving a gift to the family or making a big purchase.
- Mixing and matching: You may soon need a lot of money for some purchases, but you also want to protect your regular monthly income. You can usually put a combination of the last three programs together. Some reverse mortgage lenders even allow you to change the payment structure over time. Not all reverse mortgage lenders offer all collections, so if you are interested in mixing and matching your payment options, purchase even more.
Reverse mortgage costs
Conversely, mortgage lenders, of course, are not char charities. They earn money on reverse mortgages by charging interest on the borrowed money and collecting other fees. Although many of the costs of a reverse mortgage are similar to the fees charged on a traditional mortgage loan, there are some differences. On reverse mortgages, you usually see this type of fee:
- Interest: Like traditional mortgages, interest rates on reverse mortgages can be either fixed or adjusted. Fixed-rate loans offer peace of mind because you know what the interest rate on your loan will be. However, you usually end up paying more interest on the loan’s life for stable interest security.
Fixed-rate reverse mortgages are most commonly understood by seniors who use their loans over several years – preferably seven or more. Loans at fixed rates also help you get a good night’s sleep if you are the only fluctuating person in interest rates.
- Advance Fees: Most reverse mortgage lenders charge you a fee for processing your application, a fee for copying your credit report, and other fees for starting your loan.
- Closing Expenses: Your reverse mortgage lender wants to explain the value of your home app. This assessment helps determine how much you can borrow on your home. The higher your home’s value, the more money the mortgage lender lets you tap into your home equity. Other common closing costs include title insurance, local recording fees, and inspections.
- Insurance Cost: When a reverse mortgage lender promises you a reverse mortgage, the company is taking a risk. If you live longer than the lender expects, and the future value of your home falls far short of the expected value, if the amount of your outstanding debt balance exceeds the value of your home Conversely, a mortgage lender may lose out. To reduce the risk, mortgage lenders buy insurance. And guess what? When you have your reverse mortgage, you have to pay the insurance as an annual fee (sometimes called a risk polling fee ) or as a percentage of the value of your home.
A reverse mortgage insurance premium of up to 2.5% of the home’s value is payable at closing. If you do not take more than 60% of the approved funds, the premium is only 0.5%. In addition to paying at the end of the final insurance premium, there is an annual mortgage insurance premium of 1.25% of your reverse mortgage balance. This ongoing premium is accrued and is paid when your debt is paid off and repaid.
- Part of your home value or future definition: Some reverse mortgages include an additional cost. On some loans, this cost is based on your home value definition since your reverse mortgage began. On other loans, this extra cost is part of the value of your home when the sale of your home eventually pays off your mortgage.
Reverse mortgages require time and patience to understand and purchase. Do not rush into this process. Numerous non-profit consulting agencies supported by government funds are ready to help you set up reverse mortgage options in your area. At the state level, check with the old age department. Locally, contact the Aging on Area Agency (call the Eldercare Locator Service at 800-677-1116 or visit its website for the nearest agency). Please pick up a copy of Mortgage Management for Dummies (it has a wealth of useful content on all types of mortgages, including reverse mortgages).