Basics About Reverse Mortgages
Reverse mortgages allow a home owner to borrow against the equity in a home
. However, unlike a home equity loan, it is a loan and interest that does not have to be repaid for as long as the homeowner lives in the property. You can receive money either lump-sum or receive fixed monthly payouts for a period of time or open a line of credit that you can draw against or even receive a combination of these options. The Home Equity Conversion Mortgage (HECM) is one of the
reverse mortgages. It is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, and make home improvements and more. You can also use a HECM to purchase a primary residence if you are able fund on your own, the difference between the sales proceeds along with the closing costs of the property and HECM.
To understand better, lets contrast it with traditional bank home equity loan. With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The factors that influence the amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or Federal Housing Administrations(FHA) mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. And icing on the cake is with an FHA HECM you cannot be foreclosed or forced to vacate your house because the question of payment doesnt arise.
It is advisable for senior citizens to be watchful about
reverse mortgages scams which are frequently abused by scammers. Deceptive practices and allegations of high-pressure sales tactics are being more frequently encountered as senior citizens are being taken advantage of under the guise of a helpful and legitimate reverse mortgage. Borrowers also run the risk of being steered into inappropriate loans and annuities with higher fees by sales agents and insurance brokers who could be working together without disclosing that relationship to the borrower. Another common scam occurs during the paperwork that you are asked to sign. It may contain incorrect information or even blank fields. It would be good if you stay informed and get involved with a reputed organization for such procedures.
Reverse Mortgage loan fees are generally only a disadvantage if you intend to move out of the house in a short period of time. While Reverse Mortgage interest rates can be high, the fees and interest are not a burden to the homeowner since they are usually financed by the Reverse Mortgage itself. No matter how you justify them, Reverse Mortgage costs do indeed amount to a significant sum and to be in the know is advisable. Under the HECM program, the origination fee equals 2% on the initial $200,000 of maximum claim amount (lesser ofthe home value or county lending limit) and 1% on the balance thereafter with a cap of $6,000. Other fees involved may be mortgage insurance premium, appraisal fees, closing cost and service fees which is set aside as an amount of money deducted from the available loanproceeds at closing to cover the projected costs of servicing your account.
If you are house-rich but running low on cash, you can evaluate your options and see if it is the right time for you to indulge in a reverse mortgage.
by: Ask Bill
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