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These articles contain tax and planning techniques that should be reviewed by your personal tax adviser to determine if they are appropriate for your particular situation and comply with local law. We are unable to render legal or tax advice to individuals.

 

Free Booklet about reverse mortgages

Reverse Mortgage Definition:

A reverse mortgage is an equity loan that allows you to access the equity in your home and receive a lump sum, a tax-free monthly income and/or a credit line. Reverse Mortgage loans are backed up by either a major financial institution or by the U.S. Government.

What are the qualifications for a Reverse Mortgage?

a) You need to be at least 62 or older

b) Your home is your primary residence

c) You must have equity in your home



Reverse Mortgages are not like a common home equity loan. You have equity built up in your home so there is no need to prove your future earning ability to repay the loan.

No monthly loan payment is required. The loan payoff and payment is deferred until a future date.

Your home does not need to be free of debt; a conventional mortgage can often be reversed.

What can I do with the money?

You can use the money from your reverse mortgage in any way you can think of. Your home is like a savings account waiting to be used. Here are some examples of what you could do with the money:

a) Home improvements or construction

b) Pay off current mortgage, reverse it, quit paying house payments

c) Medical expenses

d) Tax free monthly income

e) Gifting to children or charity

f) Debt repayment, pay off credit cards, grandchildren’s college expenses

g) New car

h) Travel, take the grandchildren


There are endless opportunities and possibilities. The funds are yours to use as you wish.

How Much Money Can I Receive?

Depending on your age and the market value of your home is how the maximum amount of money that you can receive is decided.

What is an Eligibility Certificate?

You must first meet with an independent counselor before applying for the FHA of Fannie Mae reverse mortgage. During the free counseling conference, you will receive help in determining your financial needs and if a reverse mortgage is appropriate for you. Family members and close friends are encouraged to come with you. You will obtain an eligibility certificate at the end of the meeting.

This program requires full disclosure and total examination of all factors. Make certain the reverse mortgage is for you and accomplishes your goals. Often these counseling sessions can be done over the telephone.

Do I Repay The Loan?

Reverse mortgages do not call for monthly or annual debt activity, but each loan needs to be repaid in some form. No payment is made until the home is either sold either by the mortgage holder or the heirs of the mortgage holder. If at a future date you decide to relocate, the home is sold and the mortgage is paid off.

You are not signing your home over to the government. All that can ever be attached is the original mortgage plus any accumulated interest.

How Do I Get The Money?

There are 4 basic payment selections to choose from with a reverse mortgage:

a) Term Option: Obtain equal monthly payments for a set period of time that you choose such as 5, 10, or 20 years.

b) Tenure Option: For as long as you inhabit your home as your primary residence you will obtain equal monthly payments.

c) Line Of Credit Option: You select the amount of cash and the times to withdraw your maximum amount of cash that includes all of your approved money up front in cash.

d) Cash: Lump sum distribution.

Options exist to make changes in you payment choice.

How is interest determined on a Reverse Mortgage?

The reverse mortgage interest is adjustable and is fastened to a market index. When the loan closes the initial rate is set and adapts monthly or yearly. You will not be charged any interest on currencies that have been approved but not yet withdrawn and interest changes will not affect your monthly payments.

What costs are involved with a Reverse Mortgage?

Reverse mortgage loans are just like a regular mortgage loan. The costs of reverse mortgage include:

a) mandatory appraisal

b) title insurance

c) loan origination

d) escrow fees

e) recording fees


These conventional loan costs can be enclosed in your loan account usually with no money out of pocket. A reverse mortgage loan officer can provide you with a complete list of all costs and expenses.

Do I Need Mortgage Insurance?

Mortgage insurance guarantees that your equity is secured for your future use and that you can never owe more than the value of your home. Mortgage insurance is to protect you. If your home’s value is less than the loan balance when you no longer occupy your home you or your heirs will not be responsible for repayment of the mortgage. If your loan balance is greater than the value of your home, the mortgage insurance will make up the difference that is guaranteed.

There is never any liability in the event the loan value will exceed the value of your home. This protects you and your heirs from a future debt that is greater than the value of your home.

What About My Spouse and Children?

If your spouse is a legal co-owner of your house they can keep on living in the house if they wish. Until your spouse passed away or they decided to move the repayment would not be required. There may be equity saved for inheritance depending on how much money you borrow and for how long you participate in the program.

How a Reverse Mortgage Works

Home Owner and Permanent Residence

Borrowing

a) You must either own your home or pay off any outstanding loan balances with proceeds from reverse mortgage.

b) Your home does not have to be paid for to qualify for a reverse mortgage. The existing mortgage would simply be "reversed."

c) The borrower obtains a loan as a lump sum, line of credit, or sporadic payments. A combination of payment methods are allowed by some programs.

d) The borrower will stay owner of the house and will continue making payments for property taxes, insurance, and repairs.

Repayment

a) The borrower is not required to repay as long as the house is the borrowers primary residence.
b) When the last borrower sells the house, permanently moves away or passes away that is when repayment is due.

c) Typically a loan is repaid when you sell the house or by refinancing the loan.

d) When it is time for the loan to be repaid a borrower can never owe more than the value of the house.

e) The borrower or heirs will receive the difference if the proceeds from the sale of the house are greater than the loan amount due.

THE PROS AND CONS OF REVERSE MORTGAGES

There are several different reasons why a reverse mortgage may not be suitable.
A) No Need: The financial needs during retirement are already met so most retired individuals do not want to consider a reverse mortgage.

B) Security: Once a home is paid for many people are not comfortable with putting any kind of mortgage on the home. That demonstrates long held attitudes toward savings and debt.

C) Heirs: A home owner may want the equity in the home to be given to family members, other beneficiaries, or a charity, instead of being used for on going needs.

There are also many situations where a reverse mortgage can be helpful.

A) Stress Reduction: The extra money set up by a reverse mortgage can make it easy to pay of everyday expenses.

B) Debt Reduction: The finances from the reverse mortgage can be use to pay off personal debt such as credit card balances.

C) Independence: Many individuals will make improvements to the house or pay for in home care in order to keep the independence as long as they can.

D) Future Needs: A reverse mortgage is a way to meet any unforeseen circumstances that come your way in the future, even if your financial situation is steady.

SEEK PROFESSIONAL ADVICE

Reverse mortgages are new so they may be unfamiliar; the individuals that are considering a reverse mortgage are at a point where long term commitments are carefully considered. Before accepting a loan contract you are encouraged to search for professional advice. Advice can include both financial and tax opinions.
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