Understanding Reverse Mortgage Loans
October 17th, 2012
October 17th, 2012
In a recent National Mortgage News article, it talked about how mortgage debt and other expenses are overburdening pre-retirees and impeding their ability to save for retirement. Referring to information in the book, “How Are Baby Boomers Spending Their Money,” by Pam Villarreal, the article says that mortgage payments “represent about 75% of all debt for older Americans.” And that these seniors may never have the opportunity to benefit from a reverse mortgage loan to supplement their retirement income.
But what is a reverse mortgage loan and how does it work?
A reverse mortgage loan is an equity loan that’s secured by your home. You’re essentially receiving cash based on your home’s equity – what you’ve paid in mortgage payments over the years. And the cash you receive is not considered as income, so it can’t be taxed. (However, it should be noted that this income may affect your eligibility if you’re receiving any state or local “needs-based” assistance.)
A reverse mortgage loan is different than a home equity loan. With a traditional home loan, you must qualify for the loan by meeting specific income requirements. You then must make monthly payments based on the principal and interest of the loan over a specified amount of time, such as 15 or 30 years. With a reverse mortgage loan, you still must undergo a thorough financial assessment. However, you don’t have to make monthly payments as long you live in the home and pay your real estate taxes, utilities, and hazard and flood insurance premiums.
To qualify for a reverse mortgage loan, you must:
The reverse mortgage loan is generally repaid when the last surviving borrower dies; the home is not occupied as your primary residence; or the home is sold or refinanced. If you die, your heirs typically have 6 months to pay back the balance of the loan. In some circumstances, extensions may be requested.
With a reverse mortgage loan, you can make voluntary repayments of the mortgage interest, in part or full, without penalty. And you can deduct the mortgage interest on your taxes, just like you would with a traditional home loan.
For more information on reverse mortgage loans, visit HUD.GOV – FHA Reverse Mortgages for Seniors. If you do decide you want to take advantage of a reverse mortgage loan, you will be required to participate in a consumer counseling session.
If you’re interested in obtaining a traditional home loan or a reverse mortgage loan, Grandview Lending can work with you to find the right program based on your individual needs. For more information, call us at 317-255-0062.
Note: These materials are not from HUD or FHA and were not approved by HUD or a government agency.
Update: The financial assessment requirements are effective as of April 27, 2015.
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