All You Need To Learn About Reverse Mortgage
A reverse mortgage is a type of mortgage that enables property owners of 62 and older, who have normally paid off their mortgage, to borrow a portion of the home equity as tax-free income.
It allows a homeowner who owns their property outright or has significant equity to draw from to withdraw a part of their equity without possessing to repay it until they give up the home.
A reverse mortgage can be a potent way to turn into your most valuable asset to spend for changing needs in the appropriate circumstances. There are a few ways to set up this type of loan, that’s why we always recommend working with a reputable reverse mortgage lender to ensure yours is perfectly tailored to your needs.
Direct Capital Funding provides reverse mortgage loans. Our officer will make a customized payout plan that suits your requirements. Get in touch with us for more information!
Keep reading to learn further about reverse mortgages and whether they are a good choice for you.
What is Reverse Mortgage?
In simple words, a reverse mortgage is a loan. A 62-year-old or more homeowner with significant home equity can take against the value of their home and receive a payment in the form of a lump sum, a set monthly payment, or a line of credit.
In contrast to a conventional mortgage, where the homeowner pays the lender, a reverse mortgage pays the homeowner. A reverse mortgage payment is merely an advance on the amount of equity you would earn if you sold your property outright. In most cases, these payments are not taxable.
Reverse mortgage applicants must be at least 62 years old, own their homes, have sufficient equity, and live in them as their primary home. A reverse mortgage application should include your spouse.
Involve your spouse on the application as a “non-borrowing” spouse even if they are under the age of 62. In this manner, if you die with a balance on the loan, your spouse will be able to stay in the house.
If you have an existing loan on your home, one of the demands of a reverse mortgage is that you can use the funds of the reverse mortgage to pay off the existing mortgage. Apart from this, you are free to use the reverse mortgage funds as you perceive suited.
Types of Reverse Mortgage
Reverse mortgages come in a variety of forms, each of which is tailored to meet a specific financial requirement. Generally, there are three prominent types of reverse mortgages;
1. Home Equity Conversion Mortgage (HECM)
This federally guaranteed reverse mortgage is the most common type of reverse mortgage. They usually have greater upfront costs, but the funds can be used for any objective.
You can also select how the payment is withdrawn like through fixed monthly payments or a credit line or both simultaneously. Although widely available, HECMs are only available through Federal Housing Administration (FHA)-approved lenders, and all borrowers must obtain HUD-approved counseling prior to closing.
2. Single-Purpose Reverse Mortgage
This type of reverse mortgage isn’t accessible everywhere, but it’s usually the most affordable. Local and state governments, as well as non-profit organizations, offer single-purpose reverse mortgages to homeowners with low to medium incomes. These loans can hardly be used for specific purposes that the lender specifies.
3. Proprietary reverse mortgage
Contrary to single-purpose and HECM loans, this is private and not backed by the government. This type of reverse mortgage usually provides a relatively large loan advance, particularly if your home is worth more.
Are Reverse Mortgages A Good Choice?
A reverse mortgage can assist homeowners who want to earn extra income during their retirement period.
If you want to postpone taking Social Security payments for a few years, say until you reach full retirement age, you can use a reverse mortgage as an income source. Establishing a reverse mortgage line of credit can also come in useful if you operate into unexpected costs, especially if your mortgage has been paid off.
For a good purpose, the government requires a counseling session. Because reverse mortgages are tricky, it’s a good idea to get someone to go over all of the costs with you.
When you retire, you should always be capable of living off of Social Security, a pension, and your retirement savings. But don’t forget about your most important asset: your home.
DC funding has offered reverse mortgage loans to many clients and satisfied their needs accordingly. We can be your reverse mortgage lender to facilitate you with such a type of loan. Set up a 30-minute initial call with DC funding now!