Reverse Mortgages: How They Work
What is a Reverse Mortgage? Officially known as a Home Equity Conversion Mortgage (HECM), reverse mortgages are solely available to qualifying seniors (age 62 or older). Essentially, this process converts the home’s existing equity into cash that can be used to pay off an existing home or to purchase a new property. By using a Reverse Mortgage, retirees can bypass the need to ever have a traditional forward mortgage. With a sizable down payment, many have been able to buy their dream piece of Hill Country real estate without any monthly payments at all! During the time you are living on the property purchased with a reverse mortgage, you will never be required to pay a monthly mortgage payment (only taxes and insurance). Note: The mortgage DOES have to be paid back when you (or your spouse) are no longer living.
Drawbacks of Using a Reverse Mortgage
The major drawback of using a Reverse Mortgage to purchase a home is the required down payment: sometimes as much as half of the home’s value. This amount is set by the value-to-loan ratio required for a Reverse Mortgage, as well as your age and the value of your property.
Another drawback of using a Reverse Mortgage is the potentially adverse effect it may have on your estate. Because all mortgages must be paid off in the event of the homeowner’s death, a Reverse Mortgage should ALWAYS be discussed with your family and heirs prior to making the decision. Finally, Reverse Mortgages can affect the ability to qualify for needs-based programs, such as Medicaid.
Properties that Qualify for Reverse Mortgages
Reverse Mortgages can be used to purchase almost any type of property. Single family homes, townhouses, condos, and FHA-approved mobile or manufactured homes can be purchased with a Reverse Mortgage, while co-ops, bed and breakfast establishments, properties constructed less than one year before the purchase date, and mobile or manufactured homes that have not been certified by the FHA do not qualify.
If a Reverse Mortgage sounds like something that would fit your next step in life, we have many agents who specialize in retirement downsizing. Not only are these agents experienced in finding the best Hill Country property for your needs, they will be able to refer you to a local lender who specializes in Reverse Mortgages.