There is a mortgage that is becoming more and more popular with seniors, that gives older people greater financial security and it’s called a reverse mortgage. The FHA created a home equity conversion mortgage that allows you to withdraw some of the equity from your home. A reverse mortgage is very popular with elder people and gives them great stability.
If you are over 62 you are eligible for a reverse mortgage. You also must own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan. You must also live in the home. A reverse loan is a special type of FHA loan that lets you convert home equity into money. A reverse loan is unlike a home equity loan or second mortgage. There is no repayment required until you no longer use your home as your main place of residence. The FHA’s home equity conversion mortgage also allows you to purchase a primary residence if you are able to use cash to pay the difference between the home equity conversion mortgage and the sales price, plus closing costs for the property you are purchasing. The great thing about this home equity conversion mortgage is that you can use the reverse mortgage even if you didn’t buy your present house with FHA mortgage insurance. There are different types of homes that are available for reverse mortgages.
The home must be a single family home or a 1-4 unit home with one unit occupied by the person receiving the home equity conversion mortgage. A reverse mortgage is unlike a bank home equity loan because with home equity loans you are required to pay monthly home mortgage payments. The reverse mortgage is different in that it pays you and is available, regardless of income. Unlike a home equity loan, the amount you borrow depends on the current interest rate, your age and the appraised value of your home. Basically, the older you are and the more valuable your home is, the more money you can borrow. There are 5 different payment options. Tenure is equal monthly payments as long as one borrower lives and occupies the property.
Term is equal monthly payments for a fixed period of time. Line of Credit is unscheduled payments of the borrowers choosing, until the line of credit is exhausted. Modified Tenure and Modified Term are a combination of line of credit and monthly payments. With a reverse mortgage you don’t need to make payments, because the loan is not due as long as your home is your main place of residence. Obviously you must pay your real estate taxes, utilities and home insurance, but with an FHA home equity conversion mortgage you can’t be foreclosed or forced to leave your home because you missed a payment. This is great for elderly people because they don’t need to repay the loan as long as they or their family members keep living in their home.
People with a reverse mortgage never own more than the value of their home at the time they or their family sell the home. Most elderly people can use the FHA home equity conversion mortgage program. The amount they can borrow depends on the current interest rate, appraised value of the home and their age.