If you are 62 or older and want money to supplement your income, or pay for extra expenses, you may want to consider a reverse mortgage. It allows you to turn part of the equity in your home into cash without having to sell your home. Despite what you already know, you may still have some questions about how a reverse mortgage works and how it can benefit you. Here are some popular questions and answers that most people have about these loan products.
What is a Reverse Mortgage Loan?
A reverse mortgage is when a homeowner can get access to a portion of their home’s equity. The money you get is usually never taxable and will not affect your Social Security or Medicare benefits. Better yet, the loan does not come due as long as you remain in the home, pay the property taxes, and keep up the maintenance and repairs.
One of the most popular types of reverse mortgage loans is the Home Equity Conversion Mortgage (HECM), which is insured by the U.S. federal government. These are widely available loans and are only offered by FHA-approved lenders.
How Much Can You Borrow with a Reverse Mortgage?
Calculating the amount of equity, you can borrow in a reverse mortgage can seem complicated. This is because it is based on the age of the home, the value of the property, and other factors affected by the current housing market calculations. Since you are unable to borrow the total amount of equity in your home, you must use a reverse loan calculator to figure the percentage of what you are entitled to.
How Can You Get Money from a Reverse Mortgage Loan?
There are a few common ways to obtain your money from a reverse mortgage. You can get your money in one lump sum once the loan closes. You can have an open credit line of credit available to you anytime you need it. You can have monthly payments sent to you for the term of the loan or you can combine any of the options to suit your needs. For example, you can get a lump sum of money for a specific amount that you choose and the rest as an open line of credit.
Who Owns the Home in a Reverse Mortgage?
Many people might think that once they enter a reverse mortgage, they lose ownership of the home. This is not how it works. With a reverse mortgage, you are clearly and legally the owner. You are on the title and you can still make renovations, rent out a room, or even allow a family member to move in with you. Better yet, unlike with a traditional loan, you cannot be evicted for non-payment.
The only time the balance will come due is if you leave your home, pass away or fail to pay the taxes and other expenses regarding the health of the property.
