With so many baby boomers retiring there has been an increase in reverse mortgages. A reverse mortgage called the Home Equity Conversion Mortgage or HECM is the only reverse mortgage insured by the U.S. Federal Government.
With this reverse mortgage one can choose to withdraw funds in a fixed monthly amount, a line of credit, or both. There are also five different payment plans (payments to you) available and the borrower can change the payment options for a small fee if the original payment plan does not meet their needs. Some of the requirements include a minimum age of 62, own the property free and clear or owe a small amount, the home one is borrowing against must be a primary residence, must not be delinquent on any federal loans, and the borrower must participate in a consumer information sessions, which are approved by a HECM counselor.
The amount of the mortgage amount is based on the youngest borrower and the current interest rates and is based on the lesser of the appraised value or the HECM FHA mortgage limit. There are no income or credit qualifications and no repayment amounts as long as the home remains one’s primary residence and the closing costs can be financed in the mortgage.
How does a reverse mortgage work? Payments are made to the home owner and the amount borrowed is recovered along with interest when the home is sold, with the remaining value (what is left after loan repayment plus interest) given back to one’s heirs. If the sale proceeds are not enough to pay the amount owed, FHA will pay the lender the amount of the shortage. This is possible because FHA collects an insurance premium to cover this potential shortfall.
There are many intricacies involved with reverse mortgages, but none that are difficult to meet. There are many approved counselors that can guide one with any questions regarding reverse mortgages. Whatever the decision as to whether or not doing a reverse mortgage is right for the individual, one must ensure they understand every aspect of their financing conditions.
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