Reverse Mortgage Advantages: What You Should Know
There are many reverse mortgage advantages for homeowners over the age of 62. 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.
Heirs do not have to worry about payment penalties.
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.
It can help with monthly mortgage payments.
Reverse mortgages are generally used by homeowners who have a lot of home equity but are still struggling to pay their monthly payments. A reverse mortgage pays the homeowner the equity which can be used to pay off the mortgage. Another way to use a reverse mortgage is to give your retirement funds a boost. By receiving some of the loan as a lump-sum will allow homeowners to invest the money, make a profit, then use the money to pay off the mortgage.
Surviving spouses can stay in the house.
Borrowers retain ownership of their home and fortunately for the borrowers, the HECM has safeguards to help non-borrowing spouses as long as they remain in their homes for a certain “deferral period” after the death of their spouses and they take responsibility for the loan signed by the original borrowing and follow all of the obligations. Also for the benefit of the potential borrower, they are required to undergo third-party reverse mortgage counseling to be certain they understand the fine print before signing. Again, the loan is a non-recourse loan which means that the lender cannot collect more than the value of the home. The FHA also establishes caps on the amount of money that can be drawn during the first year of the loan to help ensure that proceeds last as long as a borrower needs them. No one is thrown out of the house when the borrower dies.