What Is a Reverse Mortgage?
If you are 62 or older and own property, you can borrow against your equity as tax-free income. In a regular mortgage, the homeowner would pay the lender. In a reverse mortgage, the lender pays the homeowner instead. There is no monthly payment, and you don’t have to sell your home. However, with a reverse mortgage, the amount you owe goes up over time instead of decreasing.
The most popular type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), a mortgage backed by the U.S. government.
Benefits of a Reverse Mortgage
Some key benefits of a reverse mortgage over a traditional loan are:
- Pay off an existing mortgage and eliminate your monthly mortgage payments
- Take cash out to pay off debt, do home improvements, or other big expenses
- Receive a monthly income stream
- Access to a line of credit
- You are protected in case the housing market crashes
- No monthly payments on the amount borrowed
- Continue to own your home
- You have the option to pick from many types of disbursements
- No requirement to sign over the title to the bank
The HECM reverse mortgage is very flexible which allows us to tailor a benefit that can specifically meet your need in retirement.
We also have access to a non-FHA proprietary jumbo reverse mortgage for non-FHA condos and jumbo loans above $850,000.
How Does a Reverse Mortgage Work?
Even if you have your house paid off, you might not be able to borrow the full amount. The maximum you can borrow, the principal limit, depends on several factors such as:
- Age of the borrower
- Current interest rates
- Home Equity Conversion Mortgage (HECM) limit—which is $822,375 currently in 2021
- Overall value of the home
Your principal limit will likely be higher the older you are, the more your property is worth, and if interest rates are low.
The payment options are as follows:
Line of Credit:
- The most popular option.
- This allows you to access funds only when necessary. If left alone, the line of credit grows over time, allowing you to maximize your borrowing potential.
- This is only available in an adjustable-rate mortgage.
Term and Tenure Payments:
- A term payment gives fixed payments for a specific length of time.
- A tenure payment pays out the life of the loan, even if the payment exceeds the home value.
- Used by some retirees to delay social security benefits.
- Can both be modified to include a line of credit.
- Will only stop if you pass away or leave your house permanently.
- A large sum of money, useful when paying for medical bills, paying off another loan, or home renovations.
- Does not have to be the full amount of funds you are qualified to borrow.
- Is a single-draw loan. After using it once, the only way to access additional funds would be to refinance.
Who Qualifies for a Reverse Mortgage?
Not just anyone qualifies for a reverse mortgage. In order to be approved, you need to meet several factors:
- You’re a homeowner over 62 years old.
- You have paid a certain percentage of your mortgage or own your residence outright.
- The home you mortgage is your primary residence.
- You aren’t delinquent on federal debt.
- You agree to use some of your reverse mortgage funds to pay for taxes, insurance, and maintenance.
- You received counseling from an agency to talk to you about financial factors and discuss your financial situation. This is necessary for the HECM loan.
- Your house is in good shape. If not, the lender may not qualify you.
If you’re unsure of whether you might qualify, speak with one of our knowledgeable loan specialists.
However, if you don’t qualify, there may be other options for you. For example, if you’re a veteran or service member, you may be eligible for a VA cash-out refinance, which allows you to access the equity in your home.
How Do You Pay Back a Reverse Mortgage?
With a reverse mortgage, the interest on the loan is added to the balance of the loan and paid off when the homeowner moves or sells the property, or dies. If you are away for more than 12 consecutive months, the inheritor will either have to pay the value of the loan or move out.
While you live in the residence, there are no monthly payments required. It is only after the end of the term or tenure that the heirs of the mortgage will have to decide what to do. It is considered a non-recourse loan, which means that you can never owe more than the home is worth. At the end of the mortgage, the heirs can:
- Decide to sell the property to pay off the loan, and take the rest of the proceeds as an inheritance.
- Refinance and keep the property.
- Give up the property and leave it to the bank.
If the bank ends up paying more than the home was worth over the life of the loan, that debt doesn’t transfer to the heir and instead is taken as a loss by the lender.
Apply for a Reverse Mortgage Today
Feel like you’re at the point in your life where a reverse mortgage may be highly beneficial for you? Submit an application online today to get the process started. Still feel like you need to learn a little more about reverse mortgages explained and more clarity on whether you can qualify? At Griffin Funding, we’re happy to discuss your options with you and answer any questions. Fill out our contact form or give us a call at (855) 394-8288 or (855) 651-2871.
Griffin Funding is dedicated to five-star white-glove customer service to make the mortgage process as efficient and stress-free as possible for our borrowers.