The first reverse mortgage was written to help a widow stay in her home despite her husband's loss of income. Reverse mortgages are still helping people stay in their homes today.
The definition of a reverse mortgage is simply a loan and over the years it has evolved into one of the safest mortgage products on the market today. Supported by the federal insurance, thousands of seniors have already benefited from the advantages of this financing instrument.
Read on to learn more about reverse mortgages and how they can help you live a better life.
As you enter your golden years, you may be considering options to supplement your retirement income. Finally, retirement symbolizes the end of usual work commitments, and a person's growing income is often replaced by steady income from sources such as Social Security and pensions. And with up to 50% of older Americans' net worth tied to their property's equity, you may be increasingly interested in learning more about what a reverse mortgage is and how to use it as a financial planning tool.
Reverse Mortgage Meaning/Definition
The American Association of Retired Persons (AARP) defines a reverse mortgage as follows:
"A home loan you don't have to pay back as long as you live there."
This only applies as long as you meet the terms of the loan. For retirees who are "capital rich" and prefer to age in their own home, a reverse mortgage can be a viable solution that offers additional financial security.
Benefits and Features
There are a number of unique features associated with a reverse mortgage that have made them a popular option for people 62 and older.
It can help you turn some of your home equity into cash.
A Home Equity Conversion Mortgage (HECM) reverse mortgage is guaranteed by the Federal Housing Administration (FHA).
It allows you to age in place, you don't have to move out of your home.
No Monthly Mortgage Payment – The loan must be repaid if the last remaining borrower leaves home or defaults on the terms of the loan. Borrowers are responsible for paying property taxes, home insurance, and house maintenance.
You retain ownership of your home, subject to a lien by the lender, just like any other mortgage.
You cannot lose your accommodation as long as you continue:
Stay current on your property taxes.
Keep paying for your home insurance.
Comply with all credit terms.
How reverse mortgages work
Reverse mortgages work by taking the equity in your home and turning some of it into cash that you can use however you like. These loans differ from other home equity loans because with a traditional loan, you typically repay the loan over time with a single monthly mortgage payment. However, with a reverse mortgage, the loan is repaid in one installment when it matures. Meanwhile, he continues to own and live in his home without paying the monthly mortgage. Borrowers are responsible for paying property taxes, home insurance, and house maintenance.
The loan matures and is repayable when a maturity event occurs. These events occur when the last remaining borrower:
Sell or transfer the house.
Does not maintain the house with basic repairs.
You pay no taxes, insurance and other household responsibilities.
Discontinue occupancy of the Accommodation as a primary residence or vacate the Accommodation for more than 12 consecutive months.
Breach of Credit Terms.
If any of these events occur, the borrowers or estate will be responsible for the full repayment of the loan. The house is usually sold and the loan is repaid with the proceeds from the sale. Any remaining funds go directly to the borrower or his heirs. In the event that you or your heirs wish to keep the home after a default, you can pay off the loan through other means or refinance it into a traditional mortgage.
The reverse mortgage proceeds can be repaid in a number of ways depending on the borrower's preferences. If you choose a payment method and later realize that another method would be more suitable, you can change it by changing it