If you're a senior looking for a way to supplement your income, a reverse mortgage might be a good option for you. A reverse mortgage allows you to tap into your home equity to receive money either in a lump sum or monthly payout. You remain the owner of your home and you don't have to worry about making payments as long as you continue to live in the home. It might sound too good to be true, but it's possible to use your home to help make your golden years more enjoyable.
A reverse mortgage is a loan that's taken out based on your home's equity. It's different from a home equity loan because there are no credit checks or income requirements. Additionally, you don't have to make payments on a reverse mortgage the way you make payments on a home equity loan. You might think of a reverse mortgage as a home equity loan, without the payments and check – simply a loan that's made based on the equity you have in your home.
Reverse Mortgage Information
Choose How to Receive Your Payments
There are several options for receiving payout from a reverse mortgage. You can received fixed monthly payments for a period of time, get a lump-sum payment, open a line of credit that you can draw against, or you can receive some combination of these options. You don't have to stick with a payment option forever. You may be able to change your payment option in the future for a fee. Use the reverse mortgage calculator for a quick estimate of your available reverse mortgage proceeds.
Two Types of Reverse Mortgage
There are two basic types of reverse mortgages. First, are federally backed reverse mortgages better known as Home Equity Conversion Mortgages or HECMs. These mortgages include a government insurance that ensures your loan never exceeds the value of your home. If your home is sold for less than the loan balance, the Federal Housing Administration (FHA) will cover the difference. In addition, the insurance guarantees that you'll be able to access your funds if the lender goes out of business. This insurance comes at a fee. First, there is an upfront fee of 2% of your home value. Then, a monthly fee that's 0.5% of your existing balance is added to the loan balance.
Private banks offer the other type of reverse mortgage. If these mortgages have insurance, the bank itself typically offers it. Some borrowers choose private mortgage because they live in expensive homes and FHA rules would prevent them from borrowing the maximum amount available. Private reverse mortgages tend to be more expensive than HECMs.
You Won't Owe More Taxes
Income you receive from a reverse mortgage typically isn't taxable because it's a loan advance rather than income. Once the mortgage has been paid in full, the interest paid may be tax-deductible. It's more likely that your heirs will receive this benefit. The IRS publication on reverse mortgage has not yet address whether the mortgage insurance payment or origination fees are tax-deductible. It's a good idea to consult your tax professional if you have questions about which reverse mortgage expenses can be deducted on your income tax return.
According to the United States Department of Health and Human Services, The income received from a reverse mortgage won't affect your social security or Medicare benefits as long as you spend the money in the month you receive it. If you accumulate funds from your reverse mortgage, your benefits could be affected. For that reason, you may consider receiving your reverse mortgage payout in monthly payments or as a line of credit that you can access when you need it.
Qualifying for a Reverse Mortgage
Qualifying for a reverse mortgage isn't difficult.
- You and any co-borrowers must be at least 62 years old.
- You must live in the home and it is your primary residence.
- You must not owe more than the amount of reverse mortgage you qualify for.
Unlike other types of loans certain factors are not taken into consideration for a reverse mortgage this includes:
Alternatives to a Reverse Mortgage
- Your credit history
- Your income
- Your health
A reverse mortgage isn't the only option for tapping into your home's equity.
5 Reasons to Get a Reverse Mortgage
- A home equity line of credit (HELOC) can be taken out against your home's equity. The line of credit is subject to income and credit history verification. The HELOC is like a credit card, only without the plastic. Instead, you would use a check to draw against the balance. Once you borrow from a line of credit, you must make minimum payments on the balance.
- A home equity loan is similar to an HELOC; only you receive the full amount of the loan upfront rather than drawing from it as necessary. Payments on a home equity loan begin immediately.
- If your mortgage payments are currently too high, you might refinance your mortgage to lower the interest rate or extend the loan amount (or both) to make your payments more affordable. This would give you more wiggle room in your monthly budget.
A reverse mortgage has many benefits over the alternative options of borrowing from other sources or not borrowing at all:
1. You can receive supplemental income based on the equity you have stored in your home. Rather than struggling to make ends meet or depending on your loved ones for help, you can receive extra income of your own.
2. The balance of the loan isn't due until after you and any co-borrowers are no longer living in the home. In many cases, you'll never have to worry about paying off the loan balance.
3. There are no credit check or income requirements. Unlike other types of loans based on your home's equity, a reverse mortgage doesn't require a check on your credit history and the lender doesn't assess your income level.
4. There is typically a cap on the interest rate which prevents the lender from charging exceeds fees on your mortgage.
5. Loan fees are added to the loan balance and are not due until the loan balance is due. You don't have the burden of paying monthly interest, mortgage insurance, or other fees.
Did you know a reverse mortgage can also help
borrowers avoid foreclosure? It's true. In difficult times, the reverse
mortgage program has become even more popular. By turning home equity into a
liquid asset, borrowers can receive cash monthly, in a lump sum, or in a line
of credit. The money from the reverse mortgage can be used to pay off existing
assets, including a previous mortgage. And some borrowers have successfully
used a reverse mortgage to get out of foreclosure and repay their debts.
Reverse mortgages are becoming more and more well known and trusted among seniors.
Today's times require us to be careful with our money and make well-informed decisions.
A reverse mortgage may not be right for every one or for every situation.
OmniReverseMortgage.com can help make those decisions. We provide daily blogs
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