Welcome to the home financing blog from Professional Mortgage Solutions, Inc. This week, we’ll be discussing a commonly misunderstood type of financing: reverse mortgage. Reverse mortgages allow qualifying seniors to trade in home equity for cash, all while continuing to live in their homes, rent free. Read on to learn more about the basics of reverse mortgage, and please contact us to schedule a consultation about financing in Rego Park, NY.
What is a Reverse Mortgage?
Reverse mortgage is called such because it is, in some ways, the opposite of a traditional mortgage. With a conventional home loan, a person age 62 or older borrows money to purchase a home, then pays that loan back and builds equity (ownership) through regular monthly mortgage. When people sign up for reverse mortgages, they give up some or all their equity in exchange for an agreed-upon cash payout or a line of credit; however, they aren’t forced to move from their homes. Instead, they continue to live in their homes, mortgage-free, until either they pass away or choose to pay it off.
For some elderly clients who have invested a substantial amount of their income in building home equity, reverse mortgage offers monetary security later in life – a way to access hard-earned equity. It’s important to note that these homeowners must show they are able to continue to pay for other homeowners’ expenses like home insurance and utilities, though they will not have a monthly loan payment.
How is a Reverse Mortgage Repaid?
Once a homeowner passes away or chooses to for any reason terminate the agreement, the reverse mortgage loan is due. At that point, the homeowner’s family is given the opportunity to pay off the loan and keep the home. If they choose not to do so, the lender will sell the home to pay for the loan. If the home sells for less than what is due on the reverse mortgage, the loan is still considered settled. Family members of the homeowner are never held liable for any remining debt.
What are the Types of Reverse Mortgage?
There are three main types of reverse mortgage. A home equity conversion mortgage (HECM) is insured by the federal government and funded by private lenders, up to $679,650. Single-purpose reverse mortgages are an alternative loan that is not federally insured, but rather offered by a nonprofit organization or other type of government agency. Single-purpose reverse mortgages cost less than other types, and they require the least trade-off in equity. Proprietary reverse mortgages are the third type of reverse mortgage. They aren’t federally insured because they exceed lending limits set by the federal government. Proprietary reverse mortgage is also known as jumbo reverse mortgage because it’s a high-value loan, and only certain lenders offer this type of loan.
Is Reverse Mortgage Right for You?
Like most types of financing, reverse mortgage is not a one-size-fits all proposition. If you or a loved one is age 62 or older and would benefit from a line of credit or cash payout in exchange for home equity, contact Professional Mortgage Solutions, Inc. The qualified mortgage agents at Professional Mortgage Solutions, Inc., will tell you more about reverse mortgage and other loans, so you can make an informed decision. We serve clients in Rego Park and nearby New York communities.