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.
Louisiana Home Equity Conversion Mortgage - Reverse Mortgage
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FAQ
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.
The value of your home is one of the biggest factors in how much you can borrow with a reverse mortgage. Generally speaking, you can usually get somewhere between 40% to 60% of your home's appraised value. And the higher your home value is, the more money you can potentially access.
With a reverse mortgage, seniors have a valuable tool available to them that can be utilized as part of their strategy in financial planning for retirement. There are many features of reverse mortgage loans that can benefit seniors who are looking to supplement their retirement income.
A traditional private reverse mortgage is not necessarily backed by the federal government, whereas an HECM is not only underwritten by HUD, it is also regulated to consumer safety by the federal government as well. This allows interest rates charged to be far lower.
The reverse mortgage must pay off any outstanding liens against your property before you can withdraw additional funds. The loan is not due and payable until the borrower no longer occupies the home as a principal residence (i.e. the borrower sells, moves out permanently or passes away).
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.
Reverse mortgage cons Reverse mortgages have costs that include lender fees (origination fees are capped at $6,000 and depend on the amount of your loan), FHA insurance charges and closing costs. These costs can be added to the loan balance; however, that means the borrower would have more debt and less equity.
No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage.
