You’ve heard of mortgages, but have you ever heard of reverse mortgages? These are unique types of house payments eligible for people over the age of 62 with considerable amounts of equity in their property. When seniors need additional funds not included in their fixed retirement income for certain expenses, they can get the money by borrowing against that equity at an interest rate of less than 3.5%
Read on to learn more about reverse mortgages: the different types available, how they work, and whether you’re eligible for one.
How Does a Reverse Mortgage Work?
The simplest way to explain a reverse mortgage is to think of it like a typical mortgage but switch the roles. Instead of taking out a loan from the bank to pay for a home over several decades, the homeowner gets a loan from a lender that may not get repaid in full. This type of mortgage does not need to be paid off until the person taking out the mortgage either dies or otherwise moves out of or disposes of the property. If the homeowner moves or passes away, the property can be sold by family members to pay off the loan, in which the estate gets the proceeds they are due.
It sounds almost too good to be true, doesn’t it? But in order to qualify for a reverse mortgage, you must meet very strict government qualifications. Reverse loans with fewer regulations are more likely to be scams.
Who Qualifies for Reverse Mortgages?
First and foremost, a homeowner must be at least 62 years old to qualify for this type of mortgage. They must also have a minimum of half the equity with a primary lien. If there happens to be a second lien on the home, perhaps from a second mortgage taken out years earlier, they may not be eligible unless this mortgage is paid off from the proceeds of the new reverse mortgage. All existing mortgages must be paid in full.
- Types of properties included in reverse mortgages are
- Properties of several units (up to four)
- Homes newer than 1976
- Townhomes, condos, and single-family homes
Borrowers must meet with a counselor specializing in these mortgages to ensure they are also up to date on property taxes and homeowners’ insurance.
Types Of Reverse Mortgages
Not every type of reverse mortgage is the same. As with every other type of loan from the government, these are subject to certain rules and regulations depending on circumstances. The different types of reverse mortgages include:
Single-Purpose Reverse Mortgage
The least expensive of all mortgages, these involve local and state governments or non-profit organizations providing the loan. Typically, they are given out for significant improvements or repairs on the property.
Home Equity Conversion Mortgage
Backed by the U.S. Department of Housing, these mortgages are more expensive than your typical mortgage. However, there are no limitations as to what this loan can be used for. Homeowners have the option of customizing their fixed payments. They can be received in full, as a line of credit, or in multiple monthly payments.
Proprietary Reverse Mortgage
No government agencies are involved in these loans. The lender can set their own requirements at their discretion. Unfortunately, it’s these types of loans that are used by people intending to scam the elderly out of their hard-earned money. Consulting with a real estate attorney can help homeowners make the best choice for their situational needs.
Reverse Mortgages And More In South Florida
Being a homeowner is a huge responsibility. If you have questions about your mortgage, particularly regarding your ability to pay, the lawyers at Handin Law are here to help. Call today at 954-796-9600. We are one of the oldest law firms serving the community for over 50 years.