What is a reverse mortgage, and why is it important?
Our teams use this blog as an educational space for all things real estate, which is why this piece focuses on the basics of a reverse mortgage. It’s not a topic we deal with daily, but we thought it was important to address.
Reverse mortgages are an option for older homeowners to subsidize fixed incomes or provide extra financial flexibility. If you or a loved one is considering this avenue in 2023, we know you probably have some questions, and we’re always here to help you with answers to the best of our ability.
The basics of a reverse mortgage
Reverse mortgage loans allow older homeowners to borrow money utilizing their home’s equity. They’re typically issued to homeowners who have already paid off their homes and are looking to borrow against the equity in their homes to bring in supplemental income. A Home Equity Conversion Mortgage, the most common reverse mortgage loan, is a special type only available to homeowners 62 and older.
Like a traditional mortgage, a reverse mortgage allows homeowners to borrow money using their homes as collateral. Also, as with traditional mortgages, your home’s title stays in your name. As the loan recipient, you’re paid either a series of payments or a lump sum, and the interest and fees are added over time to the loan’s balance. This means as those costs accrue, you’ll have less equity in your home.
To qualify for a reverse mortgage, homeowners must meet the age requirement, own their property outright or have at least paid off most of their mortgage. They also must occupy the property as a primary residence, properly maintain it and demonstrate the ability to make payments on property taxes, homeowners’ insurance etc.
Why reverse mortgages are important
These loans can provide seniors supplemental income alongside pensions, retirement funds and social security checks. They’re also a good way to cover unexpected home repairs or pay for out-of-pocket medical expenses. It’s important to note that before being approved for a reverse mortgage loan, you must meet with a counselor approved by the Department of Housing and Urban Development for a financial counseling session. This will help inform you of the specifics of the loan you’re applying for, what it will entail and if you can keep up with any housing-related payments and expenses.
Since we’re always sounding the alarm about wire fraud, it’s also essential to warn that reverse mortgage scams and other schemes aimed at older Americans are rampant, so be extra vigilant and aware of unsolicited emails and phone calls that offer similar-sounding products and options.
As always, thank you for reading, and if you have any more questions about reverse mortgages, let us know. We’d love to connect you with a trusted professional who can help you with more details!