What is a reverse mortgage?
A reverse mortgage is a loan that is government insured, designed for seniors 62 years and older who own their own home, to be able to access a portion of their equity as tax free cash. They can use that equity and put it any kind of account they desire including a line of credit or lump sum. They can put it into an investment account. Seniors can also take a term payment or tenure payment. A tenure payment is a payment that is guaranteed for the rest of their life.
Reverse mortgages are similar to traditional mortgages in that you are borrowing a portion of your equity but with a reverse mortgage a payment is never required as long as the borrower or borrowers or non-borrowing spouse occupy the property.
Reverse mortgages do require that you make your traditional payments towards your home in the form of property taxes, homeowners insurance, HOA Dues, any other payments of the like and making sure to keep up the basic maintenance of your home. That being said, a mortgage payment will never be required. The loan amount will grow overtime. That is the only “pitfall” of a reverse mortgage.
The loan amount will grow because the interest a bank would be charging you monthly will be added to the principle and will grow as long as you occupy the home and don’t make a monthly payment. That being said, you can make a monthly payment in part or in whole. You can make a payment anytime you want and the loan can be paid off anytime you want as there is no pre-payment penalty. Most people don’t make a payment as you’re not required to do so.
The good part about a reverse mortgage is that any payments that you normally would have made, you can pocket. You can also use the equity in your home any way you want. You can set it up as a line of credit. When you have a line of credit, you’re only being charged for what you spend.
The only downside, I guess you could say to a reverse mortgage, is that you will be required to get mortgage insurance. This goes straight thru FHA. This is to guarantee that your loan is non-recourse. That means that you can never owe more than the property is worth – even if your home becomes upside down. You and your heirs will never be held responsible for any additional amount other than the value of your property.
Some of the lies that people have perpetuated of the reverse mortgage are that the bank takes the title to your home. That is the number one misunderstandings of a reverse mortgage as that is not correct. The bank takes out a note, like they would on a regular mortgage. You, the homeowner, retain title (you never sign over title to your home).
Another misconception, let’s say, is that reverse mortgages are more expensive than traditional mortgages. Most fees involved with a reverse mortgage which include origination fees, appraisal, title, escrow, notary, recording…these are all fees included in a traditional mortgage. The only real difference is that mortgage insurance premium. The amount of the mortgage insurance premium will depend on the loan amount. That money again is paid to the government and unfortunately it’s not something we can avoid with reverse mortgages. Reverse mortgages can be very helpful when used correctly.
The best way to find out more is to call me today:
Direct: (760) 845-5369
Toll Free: 1.800.598.6265
Thanks very much for listening and watch for more videos to come.