Understanding the Benefits of a Reverse Mortgage

A reverse mortgage is a powerful tool that can provide much needed relief from stressful financial burdens for our older homeowners.

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Why a Reverse Mortgage May Help You or Your Loved One

As people age, income decreases, while other unexpected expenses, like medical, may increase. In many cases, seniors may have saved insufficient retirement money to afford the added costs of living longer.

Whatever the reasons, senior citizens are often looking for ways to access the equity they have stored in their home to fund their financial needs. A reverse mortgage may be a viable option.

Reverse mortgages eliminate mortgage payments and offer borrowers access to a percentage of their home’s value while they are still alive.

Who Qualifies for a Reverse Mortgage?

To qualify for a reverse mortgage, borrowers must meet the following criteria:

  • Age 62+
  • Applied to primary residence
  • Residence must be 1-4 family home

Primary Reasons for Seeking a Reverse Mortgage

There are four main reasons why senior citizens apply for a reverse mortgage.

  • Increase their monthly cash flow. After retirement, many senior citizens struggle to make ends meet. Reverse mortgages can eliminate mortgage payments, which is often the bulk of their monthly expenses. They will only be responsible for taxes and insurance, with the rest of the money free to use as they need.
  • Home renovation. Many older borrowers live in older, outdated homes. They want to update their homes so that they can sell them or accommodate aging in place.
  • Pay off credit card debt. If high-interest credit card debt has become crippling, many seniors view a reverse mortgage as a way to start fresh and eliminate increasing costs.
  • Needs-based loan. Some senior citizens want a regular mortgage loan, but don’t qualify. Reverse mortgages require less qualifications, with no minimum credit score and no Debt-to-Income ratio. With no prepayment penalty, they are able to treat a reverse mortgage like a regular mortgage, making monthly payments.

Learn the truth about how a reverse mortgage can help ease your financial worries.

Truth Behind Common Reverse Mortgage Misconceptions

Reverse mortgages get a bad rap. Too many people don’t fully understand what a reverse mortgage is and how it works.

Some of the most common misconceptions about reverse mortgages include:

  • The bank will own your house – FALSE – The borrower continues to own the house throughout their lifespan. After death, heirs will be given a period of time to repay the mortgage in order to maintain ownership.
  • They eliminate any inheritance for your children – FALSE – There are many payment options available for heirs after the death of the homeowner. There are also options for how the homeowner can maintain equity in the home, passing this on to their dependents.
  • They are a scam to take advantage of senior citizens – FALSE – Before applying for any reverse mortgage, borrowers are required by law to complete a HUD counseling session in order to become fully educated about the pros and cons of a reverse mortgage. The counselor also verifies that they are choosing a reverse mortgage willingly and not being manipulated into it by other individuals.
  • Spouse will be evicted if you pass away first – FALSE – If they are co-borrowers, spouses are protected by reverse mortgages and allowed to remain in the home until they pass away. Only once both spouses pass, the repayment process begins.
  • It is a last resort – FALSE – A reverse mortgage is just one of many options available to a homeowner. There are both benefits and drawbacks to a reverse mortgage and the decision rests upon the borrowers priorities at the time. Eliminating mortgage payments or credit card debt or finding a way to manage healthcare needs, such as medical bills or long-term care costs often outweigh the negatives of a reverse mortgage.
  • Heirs may be financially harmed by inheriting a home with a reverse mortgage – FALSE – An heir has multiple options when they inherit a home under a reverse mortgage. Your Advisors Mortgage advisor can help you understand. However, know that if the sale of the home does not cover the loan, the government is not allowed to go after heirs for repayment or damage their credit score.

Weighing the positives and negatives of a reverse mortgage ultimately comes down to the priorities of the borrower and their family.

Reverse mortgages can completely pay off your mortgage or provide the funds needed for long-term health. When people are struggling to make ends meet, the elimination of mortgage payments can drastically transform their quality of life.

There are very important differences in the process of obtaining a reverse mortgage, as compared to other types of mortgages. The biggest changes are in the beginning and the end of the process.

A reverse mortgage is unique. The first step in a reverse mortgage is counseling with a HUD (Department of Housing and Urban Development) representative. The point of the session with HUD is to protect the applicant and make sure the applicant fully understands how a reverse mortgage works. The counselor will verify that the reverse mortgage is their decision and that no one is trying to take advantage of them.

In addition, they will evaluate the applicant’s financial situation and advise whether any public or private programs can offer assistance or alternatives to a reverse mortgage.

The reverse mortgage counselor will educate the applicant about the pros and cons of a reverse mortgage, including how they work, tax implications, and payment options. After completing the counseling session, the applicant will receive a certificate to provide to their lender.

Once the HUD certificate is in hand, the applicant should choose a lender and fill out the application. After the application has been submitted, the lender will order an appraisal, credit report, and assemble the other necessary documents. At this point, the loan application will proceed similar to other types of loan processes.

Once all of the paperwork has been completed and the loan has been approved, the loan can proceed to the closing stage. After the closing paperwork is signed, the borrower legally has 3 days to change their minds.

When the reverse mortgage has become official, the lender will be able to distribute the funds. If a mortgage still exists on the home, the funds must first be used to pay off the balance. Any additional funds will become available as a line of credit for the borrower to use.

Gain peace of mind. Find out if a reverse mortgage is the right solution for your situation.

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Common Questions About Reverse Mortgages

The amount of money a borrower may withdraw from a reverse mortgage varies, depending upon the borrower’s age, the value of the home, how much equity the borrower holds, the current interest rates, and type of payment structure. Borrowers may opt for different payout structures, including lump sum, monthly payments or a line of credit. The maximum amount available will change based on how the money is distributed.

If the spouse is a co-borrower and is still alive, nothing happens until both individuals have passed. After both deaths, the reverse mortgage must be repaid. There are multiple options for repaying the loan. The heirs may sell the home, take out another mortgage, offer the deed of the home to the lender, or refinance to a forward mortgage.

There are multiple options available to borrowers to maintain their equity value in their homes, such as starting life insurance policies or continuing monthly payments. Advisors Mortgage Group takes pride in helping their customers make the right decisions for both themselves and their families.

Interest rates change regularly. Advisors Mortgage Group offers more competitive rates than other leaders in the industry. When you work with Advisors, you can rest assured that you or your loved one will receive the best possible rates and service.

Reverse mortgage fees will depend upon the individual loan. In addition to fees payable to the lender, the counselor also requires a separate fee.

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