If you’re a homeowner who is looking to tap into the home equity that you’ve spent years building, you may be interested in a reverse mortgage also called the HECM ( home equity conversion mortgage.) While these unique financial tools aren’t for everyone, if you qualify for a reverse mortgage you’ll find that this might be the perfect financial solution that allows you to pay off your existing mortgage if you have one or create a line of credit for future use or both!
Let’s take a closer look at how reverse mortgages work, including how to qualify, what happens to your existing mortgage and what a reverse mortgage might cost.
Do You Meet the Requirements for a Reverse Mortgage?
In short, a reverse mortgage is a type of home loan secured by a primary residence, where repayment is deferred to a later date – generally when the home sells. If you are 62 or older and you want money to pay off your mortgage, supplement your income, or pay for healthcare expenses, for example, you may consider a reverse mortgage. This loan allows you to convert some of the equity in your home without having to sell your home.
The reverse mortgage is not for everyone! You need enough equity built up in your home as well as qualifying with a financial assessment of income and credit to ensure that you can pay property taxes, homeowners insurance, and other applicable property charges.
What Happens to Your Existing Mortgage?
If you have a regular mortgage it is still possible to qualify for a reverse mortgage, but you’ll need to use some of the proceeds to pay off your existing mortgage. For example, if you have $50,000 owing on your mortgage and you receive a reverse mortgage for $100,000, you can pay your initial mortgage off and still have $50,000 to use as you see fit. How much you can borrow is determined by the youngest borrower’s age, rates, the maximum claim, or home value whichever is less.
Do You Know What a Reverse Mortgage Costs?
Keep in mind that like a traditional mortgage, a reverse mortgage has its costs. Included is a mortgage insurance premium (for the HECM), third-party fees such as title and escrow, lender fees, all of which are referred to as “closing costs”. It is most common to finance these fees.
Learn More About Your Reverse Mortgages Options
A reverse mortgage can be an excellent way to take advantage of the equity that is currently locked up in your home.
To learn more about reverse mortgages, contact your local certified Reverse Mortgage Professional (CRMP) for guidance and expertise.