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Retirement Planning Information: Reverse Mortgage 101


Retirement Planning Information: Reverse Mortgage 101

This reverse mortgage 101 will help you understand the benefits of reverse mortgages. The Home Equity Conversion Mortgage (HECM) is a reverse mortgage. It is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. Reverse mortgages are unlike a traditional home equity loan or second mortgage. HECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

Don’t worry about monthly mortgage payments.

Homeowners who are approved for a reverse mortgage loan can eliminate monthly mortgage payments. However, the homeowners must still pay property taxes and insurances.

You still own your home.

When it comes to the title, a reverse mortgage is no different than any other mortgage. A common misconception is that the homeowner loses the title in the event of a reverse mortgage but that is not the case. The borrower keeps their name on the title.

Reverse mortgages are insured by the Federal Government.  

Reverse mortgages are government-insured and secure. If the homeowner takes equity in a line of credit, there is no risk that their available line of credit will be withdrawn.

You can leave your home to your heirs.

Heirs are not responsible for repaying a reverse mortgage loan. If the borrower dies, the home can be sold and the proceeds will be applied to the loan amount and the heirs will get the equity left over. If the proceeds do not cover the loan amount, the heirs are not required to pay any money out of pocket.

You get to stay in your home.

You have put a lot of money into your home over the years and you have every right to use that money. You don’t have to worry about losing your home with a reverse mortgage.

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