A reverse mortgage is a loan from the U.S. Government for 50% to 75% of the value of a home owned by a homeowner aged 62 and older. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to the homeowner. The funds from a reverse mortgage are tax-free. The loan doesn't have to be repaid in the homeowner's lifetime, however, when the homeowner dies, the money received plus approximately 4% interest is repaid by their estate. The loan is repaid when the homeowner ceases to occupy the home as a principal residence, due to the homeowner (the last remaining spouse, in cases of couples) passing away, selling the home, or permanently moving out.
Connecticut Home Equity Conversion Mortgage - Reverse Mortgage
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Taking a loan too early The earliest a homeowner is eligible to take out a reverse mortgage is age 62, but Orman considers it risky to do so. "If you tap all your home equity through a reverse at 62 and then at 72 you realize you can't really afford the home, you will have to sell the home," she said.
Still, if you want a reverse mortgage to pay for property taxes or home repairs, a single-purpose reverse mortgage is likely your best bet since they are easier to qualify for and less expensive. On the other hand, if you are looking for cash to cover everyday living expenses, an HECM could be better.
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older. This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loans.
HECM Purchase Reverse Mortgage Rates APR Illustration: 7.560% + . 50% Monthly MIP = 8.060% in total interest charges. Assumes $250,000 loan amount and includes . 50% Mortgage Insurance, standard 3rd party closing costs.
Does AARP recommend reverse mortgages? AARP does not recommend for or against reverse mortgages. They do however recommend that borrowers take the time to become educated so that borrowers are doing what is right for their circumstances.
Cons of HECM You have to live in your home: When you get a HECM, your property must be your principal residence for much of the year. You'll have to pay back the HECM if you sell the home or want to move.
In a reverse mortgage homeowners borrow cash from their own home equity. The borrower does not make monthly payments to the lender. Instead, the lender makes monthly payments to the borrower based on the amount of accumulated home equity.
