Seniors that are “house rich” but “cash poor” may find that it is difficult getting by on a fixed income. An increasingly popular loan product known as a reverse mortgage could help you leverage your home equity in order to improve your standard of living. So what is a reverse mortgage?
A reverse mortgage is a loan product that allows you to get paid monthly by drawing down on the equity in your home. You could receive payments that could increase your monthly available income for everything from prescription medicine to home improvements. The best part is, you get to stay in your home while receiving payments.
The most common type of reverse mortgage is government ensured, and is officially called a Home Equity Conversion Mortgage (HECM). Some private lenders also offer a reverse mortgage, although the requirements may be slightly different. An estimated 90% of all reverse mortgages are HECMs.
Reverse mortgages may provide much needed income during retirement. This is especially useful to seniors that have substantial equity in their homes, but have trouble meeting other monthly bills.
How it Works
A reverse mortgage is a contract with a lender that agrees to make tax-free payments to you each month. These payments are drawn off of the equity that you have in the home.
You do not have to repay the loan as long as you remain in the home. The loan can be repaid when the last spouse dies or moves out of the home. Heirs may keep the home if they pay off the loan, or they may sell it to cover the loan balance.
In order to qualify, all applicants must be 62 or older. This means that the younger spouse would need to be at least age 62. Some private reverse mortgage lenders have lowered this requirement to age 60.
There are many advantages and disadvantages to a reverse mortgage. A housing counselor can discuss these with you. Remember that Vision Credit does not sell reverse mortgages, rather we help you evaluate your needs to decide whether a reverse mortgage would even benefit you.
You are required to get a certificate from a HUD approved reverse mortgage counselor prior to obtaining a reverse mortgage. In some states, this counseling can be done over the phone. Other states, such as North Carolina, require a face-to-face counseling session.
To find out more about reverse mortgages, contact one of our certified housing counselors. We can help you understand the process and refer you to get your certificate for a reverse mortgage.
