Here’s What Makes a Reverse Mortgage Good for Homeowners
Here’s What Makes a Reverse Mortgage Good for Homeowners. Reverse mortgages may have a bad reputation and, at one point in time, they deserved their bad reputation. However, thanks to the changes to the Federal Housing Administration’s HECM program, they have become safer and less expensive.
A reverse mortgage is a specialized loan which is available to individuals who are over 62 years old. A reverse mortgage allows borrowers to convert a portion of home equity into cash. Interest on the loan is delayed until the home is sold or the last borrower dies.
In order to qualify for a reverse mortgage, homeowners need to own their home outright or have a low mortgage balance that can be paid off easily with the proceeds of the loan. If the homeowners do not live in the home, they are not qualified for a reverse mortgage.
According to the Los Angeles Times, “A reverse mortgage may be an option if you can’t make payments. These loans allow you to tap the equity in your home if you’re 62 or older. The amount you borrow plus interest compounds over time and is paid off when you die, sell or permanently move out. You can get the money as a lump sum, in a series of monthly checks or as a line of credit you can tap.
The older you get, the more you can receive from your home — but you can’t get the money all at once, as you could in the past. If you choose the lump sum option, you can only access 60% of your loan amount the first year. This restriction was put in place to keep you from blowing through your equity too fast.”
According to Brijesh Parnami, ED and CEO, Essel Finance Wealth Zone, “Reverse mortgage works well for families where kids are well settled and don’t need the parents’ house.”
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.