If you’re a homeowner and at least 62 years old, you may be nearing your planned retirement. This mean’s it’s an ideal time for you to consider a Home Equity Conversion Mortgage - commonly referred to as a HECM or reverse mortgage. A reverse mortgage increases your cash flow to help you afford a variety of home improvements that increase your comfort and safety. The extra cash can also help you pay for medical expenses, in-home care, assistance with housekeeping and gardening, and other everyday living expenses. The choice is yours.
Financially prepare to age in place with a reverse mortgage
A reverse mortgage is a loan that’s guaranteed by your home’s value. You don’t have to repay these funds as long as your home is your primary residence. It may be easier to understand how a reverse mortgage works if you consider your home’s current or fully-paid mortgage as a forward mortgage.
When you buy a home with a forward mortgage, your monthly payments reduce the balance over time until it’s totally paid off. Also, your equity in the home rises over the years. Equity is the amount of money you’ve repaid on your mortgage, plus any increase in your home’s value since you began making payments. Since property values have increased quickly over the last few years, you may have considerably more equity available than you realize.
When you take out a reverse mortgage, you won’t make monthly payments to your lender. Instead, you’ll receive funds from your lender, either every month or upon request.
Since you retain ownership of your home, you’ll need to continue paying property taxes, homeowner insurance premiums, HOA fees, and any other similar obligations. You’re also required to ensure your home is maintained and repaired when needed.
Using HECM funds to improve your home’s safety and functionality
Although you’re free to carry out any renovations you like, you should consider safety enhancements to your home’s bathroom and entryways. Roof repairs or replacements, as well as kitchen renovations, are other popular common home improvement projects financed with reverse mortgage proceeds.
Before you begin planning your remodeling projects, decide if you’re committed to living in your home after you retire. If you’re not sure if your local housing market will support the amount of money you’re planning to invest in your home, be sure to discuss your plans with a real estate agent.
Empty nester? Make a move with a reverse mortgage
If you’re concerned that your current home may need more work than you’re comfortable financing, or if you’re interested in lowering your monthly living expenses, you can opt to use a reverse mortgage to buy a new home. For example, if you’re in a larger family home, you might want to downsize to a home that is a more manageable size to maintain. If you’re looking forward to expanding your social life, purchasing a new home in an assisted living or retirement community could help you enjoy retirement more.
A HECM for Purchase can be used to finance a new principal (also known as your primary) residence. It works by using loan proceeds from the reverse mortgage. To qualify for this option, you’ll need to make a down payment large enough to pay the difference between your reverse mortgage proceeds and your new home’s sale price, plus closing costs.
Answers to Frequently Asked Questions on Reverse Mortgages
How much money will I receive?
The reverse loan amount you are eligible for depends on a few factors: your age, the value of the new home and the amount of the down payment. We suggest you discuss your plans with a friendly, knowledgeable Stearns Lending Reverse Mortgage Specialist
Will I still own my home?
A reverse mortgage does not require you to give up ownership of your home. Your name remains on the title, and the home remains yours while you continue to live there. Keep in mind that as a homeowner, you’re required to continue paying associated taxes on time, maintain your homeowner insurance policy premiums, and keep your home maintained and in good repair.
When does a reverse mortgage need to be repaid?
Once you no longer live in the home, the reverse mortgage’s balance, including interest and fees, must be repaid.* For example, if you eventually decide to move to an assisted living facility or live with relatives, you can choose to sell your home to repay the reverse mortgage. If you decide not to sell your home, you or your heirs may decide to arrange repayment with another source of funds.
Will my heirs have to pay additional fees to settle my HECM balance?
You or your heirs will never owe more than the value of your home when the loan becomes due. A HECM (Home Equity Conversion Mortgage) reverse mortgage is insured by the Federal Housing Administration. And if the reverse mortgage’s balance is less than the market value of your home, the additional equity will be there for you or your heirs when the home is sold.
It’s a good idea to discuss these options with your children or heirs if they expect to inherit the family home.
To learn more, contact Stearns Home Loans today and ask to speak to a HECM Loan Officer. (If you apply for a reverse mortgage, you’ll be required to meet with an independent certified HECM Origination Counselor.)
*Failure to maintain loan obligations will require the loan to be repaid or may result in foreclosure proceedings.
Jul 23, 2019