Retirement sounds wonderful in theory, but you may not have the money saved that you need for those leisure years. You’d like to retain your current quality of life and add a few extras like road-trip travel, spoiling your grandchildren and delving into a new hobby. A reverse mortgage might provide the funds to do it all.
If you or your spouse is 62 or older, you’re eligible to access a portion of the value of your home, says Mike Floyd, president of Puget Sound Financial.
“Instead of paying money out your lender pays you. You have money coming in and can still live in your home,” Floyd says. “For most people in retirement their single biggest expense is their home mortgage payment. A reverse mortgage eliminates that expense while dramatically increasing their cash flow.”
A reverse mortgage has three main uses. It helps seniors continue to live in their current home, if they’re currently in a reverse mortgage, they can refinance to a lower rate and they can purchase a different home using a reverse mortgage, says Ted Butler, reverse mortgage adviser at Mutual of Omaha.
Take a closer look at how this useful tool works.
Requirements for a reverse mortgage
Floyd lists the qualifications needed here:
- You must live in your home as your primary residence. The house can be a single-family residence, a multifamily home up to a four-plex, a U.S. Department of Housing and Urban Development-approved condominium or a manufactured home constructed after 1976.
- You’re still obligated to pay your property taxes, homeowner’s insurance, utilities and upkeep of your home because you retain title to your home.
- You must be counseled by a HUD counselor.
- Any mortgage left on your loan must be paid off using your reverse mortgage.
- The modern reverse mortgage is “non-recourse.” You will never owe more than the value of your home due to the FHA insurance that comes with this loan.
Because of the current pandemic and the recommendation to keep a physical distance from others, you can fill out all the paperwork online and attend the information session via phone, Floyd says. Your loan officer will help you navigate the underwriting process and answer any questions you may have, usually over the phone.
Types of reverse mortgages
Three kinds of reverse mortgages exist. The single-purpose reverse mortgage must be used for a single purpose — like home repairs or property taxes — that the lender stipulates. These mortgages aren’t available everywhere, only through some government or nonprofit agencies.
The second type is called a proprietary reverse mortgage, which are private loans usually for high-value homes. If the appraised value of your home is high, you may qualify.
The most commonly used type of reverse mortgage is the Home Equity Conversion Mortgage and it is the only one insured by the Federal Government. You must go through a Federal Housing Administration-approved lender to get an HECM.
You can use the money from an HECM for whatever you want. Supplemental retirement income, medical expenses, home improvements, a cruise, nothing is off the table.
The amount you can borrow with an HECM depends on the following factors: your age, the appraised value of your home, current interest rates and the likelihood that you’ll pay the property taxes and insurance. The older you are, the more you qualify for.
The HECM offers several different ways for you to get paid.
- A single lump sum disbursement.
- Term, fixed cash advances every month for a set period of time.
- Tenure, fixed cash advances every month for as long as you live in your home (until age 150!).
- A line of credit, which you withdraw from in amounts you choose until all the funds are used. The funds inside the line of credit actual grow in value, and you can even add more funds to the HECM line of credit.
- A combination of a line of credit, monthly payments and lump sum.
A reverse mortgage doesn’t suit everyone, although Floyd says they are gaining in popularity. According to the Statista Research Department, 41.9 thousand HECMs were granted in 2020.
If you’re considering accessing your home equity through a reverse mortgage the Federal Trade Commission encourages you to look at what’s available and comparison shop.
In conclusion, Butler says, seniors have the ability to safely access one of their most important and often their largest asset, their home. They do this without taking on monthly payments and a reverse mortgage helps them live with greater safety, security and peace of mind.
Ted Butler and Mutual of Omaha Reverse Mortgage provide the information you need from a name you know and trust. With loan amounts up to $4,000,000 the modern reverse mortgage is a financial tool for both today and tomorrow. NMLS #71436