What Exactly Is It?
Reverse Mortgage Loans are a safe way for seniors to access home equity without the obligation of making monthly mortgage payments. HECM’s (Home Equity Conversion Mortgages) are endorsed by HUD and insured by the FHA. They are the most widely used of all senior citizen equity loans offered today.
The purpose of this type of loan is to allow you to use the idle cash trapped inside your home without obligating you to sell your house or take on any additional monthly debt to do so.The true beauty of a HECM is that they do not require ANY repayment as long as you live in your house as your primary residence.
How They Work
These loans work exactly the opposite of a “forward” or traditional mortgage. One way to explain how they work is to think of them as rising debt – falling equity. Whereas, a forward mortgage, like the one you took out years ago when you first bought your house, was a rising equity – falling debt loan. Although it was comforting to know you were building up equity over the years and working toward a free and clear asset, now that you are there, you may be feeling house rich but cash poor. Yes, the home is paid off or nearly so, but you may be having difficulty making ends meet from a cash flow standpoint. Your largest asset might very well be your home, but you have no way of accessing the cash to help you live a higher quality life or to simply keep up with inflation. Consequently, now might be the perfect time to consider “reversing” your equity in order to get the financial freedom you deserve. Reverse Mortgage Loans can give you that freedom.
Before HECM loans were available, you would have had only two alternatives to get cash from your home: One, you could sell your property and pocket the cash. But then where would you live and how much would that cost? Or two, you could take out a new forward mortgage to access your home’s equity. But then you would have monthly payments to make all over again. In addition, a new loan requires you to qualify based on income and credit. If for some reason you are unable to make the payments in the future, the lender would have the option of foreclosing on you and you could lose your home completely. Many senior citizens don’t find either of these options appealing or even attainable for some.
Reverse versus Forward Loans
Reverse mortgages, in contrast to forward loans, do NOT require any monthly payments as long as you live in your house and keep up the maintenance, property taxes and insurance. Consequently, you cannot lose your home for not making the payments, (because there are no payments). These loans do not require any income qualifications. In fact, you could have no income at all and still be able to get a reverse mortgage. You can think of this type of equity loan simply as a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you now have the ability to turn the idle equity in your house into Tax-Free cash without having to sell your home or repay the loan each month. You can spend down your home equity while continuing to live in your house without monthly mortgage payments. After all, It’s Your Money!
After they fully understand how these loans work and complete HUD required counseling, many seniors find that reverse mortgage loans are nothing to be feared and can be a godsend for many. Although the majority of these loans do become rising debt – falling equity loans, in some cases, home appreciation does out-pace the loan balance if the home’s value increases more rapidly than the debt rises.
As you can see reverse mortgages are not that complicated. In fact, they are a safe financial planning tool as well as a mainstream way for you to plan your future and have a more secure life.