Reverse Mortgage Help
What does it mean when someone asks for “reverse mortgage help”? Perhaps they are needing assistance understanding what a reverse mortgage is or how it works. Perhaps they are trying to decide among the different types of reverse mortgages. Maybe they are trying to sort through all the different kinds of views out there about reverse mortgages.
We created this site to help people with all of that. This product is different from people are used to, plus it only comes into play at age 62 or older, which means the borrowers are paying special attention to major financial decisions. This combination means it can be stressful for borrowers to decide if a reverse mortgage is a good thing or a bad thing.
It is useful to look at the big picture. Legislation authorizing the reverse mortgage (the more technical name is Home Equity Conversion Mortgage or HECM) was signed by President Ronald Reagan in 1988 after years of study and lobbying by such groups and the National Council of the Aging, the VA, and others. It is not a “scam” or “rip-off,” it was created because ordinary citizens asked for it, and it works because it is insured by the Federal Housing Administration (FHA). It’s hard to get something that’s more solid or has more authority behind it. So the question is not so much whether the product itself is good or bad, but whether it is good for you in your particular situation.
Seniors transition from putting money into investment accounts to taking money out of those accounts. This is what a reverse mortgage allows you to do with a home. All those years you put money into your home, creating significant equity. Now in retirement, or facing retirement, you may decide you want to tap into that equity, just as you tap into your retirement accounts. With the HECM you can get tax-free cash with no payments required. It’s tax-free because it’s already your money, just as you don’t pay taxes on the money you receive from a regular cash-out refinance.
Here’s how it works. If you’re age 62 or older and own your primary residence with enough equity, you may qualify. How much money you would get depends on the age of the youngest borrower, the value of the home, the interest rates available, and the loan limits for your area. If you are 62, you would get about 62% of the value of the home, minus the loan costs and paying off any existing mortgage. If you are 82, you would get about 73% of the value. The value is capped at 625,500, meaning if your home is worth $1,000,000, you’re not going to get 62% of that value at age 62, you’re only going to get 62% of $625,500.
The costs are usually more than for a regular mortgage, primarily because of the required up-front insurance, which is 2% of the value of the home (again capped at $625,500). If your home is worth $500K, that’s $10K right there. It’s possible to practically eliminate that cost by choosing a HECM Saver option, but then you get less money.
You can choose to receive your money in a lump sum at a fixed rate, or in an adjustable rate line of credit, or as monthly income with an adjustable rate, or some combination of the last two. Whichever option you pick, because you will not be making monthly payments, the balance of your loan will increase over time as interest accrues and as your annual required insurance accrues.
It’s possible that if you live a long time and your home value does not increase much (or even goes down), your balance will eventually exceed the value of the home. If you pass away or sell the home in that situation, the insurance guarantees that the lender will receive the full amount owed them, while you or your heirs only have to pay the current value of the home. Statistically, most HECMs end with equity still in the home and the borrower or the estate retains what’s left over after paying off the loan, just as with a regular loan.
If you are considering a reverse mortgage for yourself or a loved one, you should learn all you can from sources like this site, and consult with a loan officer. Get that reverse mortgage help, and this article should give you a good foundation. HECM guidelines also require that all borrowers receive counseling from a 3rd party as well, to make sure they understand how the loan works. Many thousands of seniors have found that a reverse mortgage worked well for them, but only you can decide if it fits your situation.