More seniors than ever before are getting reverse mortgages as a way to provide a good cash flow during their retirement years. Because of the flexibility available, it could be the financial solution that many seniors will need to have during this stage of their life. Here is an overview of reverse mortgages and why they can help many elderly people to enjoy a more comfortable retirement.
A Reverse Mortgage Is Easily Obtainable
One thing that makes reverse mortgages an available tool for so many is the easy qualifications. Income does not matter, and neither does the ability to repay the loan. There are only two qualifications and the first one is that all people whose names will appear on the mortgage must be 62 years old or older.
The second requirement is that there must be more equity in the home than the amount still owed. When a reverse mortgage is obtained, it will first pay off any existing mortgages, then some of the balance of the money can be used for a cash flow.
Seniors Choose Cash Flow Options
After a portion of the equity has been set aside for closing costs, fees, and interest, some of the remaining money can be obtained as cash. Seniors can get access to this cash in three options - through a lump sum, monthly payments, a line of credit, or in some combination of the three.
If the money from the equity begins being distributed when around 62, this means that the money must be distributed over a longer time period. This results in smaller payments each month, and also gives a longer time for interest to accumulate. According to HUD, "the more valuable your home is, the older you are, the lower the interest, the more you can borrow."
Positive Features of a Reverse Mortgage
Reverse mortgages provide seniors with an opportunity to get their home’s equity and make no payments on it as long as the house is being lived in by one of the owners named on the mortgage. Seniors are also permitted to live in their home as long as they need it, and they also retain ownership.
The government's version, the FHA reverse mortgage, is guaranteed to never be more costly than the house is worth - no matter how long it is lived in. This is a feature of Home Equity Conversion Mortgage, also called a HECM.
Demands of a Reverse Mortgage Loan
While the mortgage is in effect, seniors do have some responsibilities to the home they are living in. They are obligated to continue to pay for the taxes and insurance, and they must also maintain it, too. As long as these are taken care of, reverse mortgage lenders cannot force them to move out.
Caution Needs to Be Exercised When Getting a Reverse Mortgage
There are a number of scams around and caution needs to be exercised. When trying to get a FHA reverse mortgage, HUD requires that seniors first go through a third party counseling session in order to ensure that the details are thoroughly understood before obtaining a HECM. This helps protect seniors from possible loss.
Reverse mortgages may not be in everyone's best interest. If trying to obtain a lump sum, for instance, this may hurt the possibility of getting government benefits such as Medicare.
Seniors can go online and find free calculators, which will reveal how much money from equity is available. Reverse mortgage rates will vary among lenders and several quotes should be obtained before closing the deal.
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Mike Valles - Mike Valles has been a full-time freelance writer for more than six years. He has written thousands of articles and other materials - ...
