Reverse mortgages allow older property owners to borrow against their equity in order to get cash or credit from a lender. One of the primary benefits of reverse mortgages is that borrowers do not have to make monthly payments; rather, the amount is often paid back when the homeowners or their heirs sell the house.
There are a few requirements for the most common type of reverse mortgage, known as a home equity conversion mortgage, or HECM. These requirements are the following:
- The home must be owned outright, or the majority of the principal must be paid.
- The property must be the principal residence and free of delinquent federal debt.
- The homeowner must be willing to be subjected to credit checks and potentially other eligibility requirements.
- All property taxes, insurance, and any other fees, such as HOA fees, must be paid.
Once a person has qualified for and is approved for a reverse mortgage, they must sit through an information session, which is conducted by an approved HECM counselor. Unlike a typical mortgage loan, which requires monthly payments to be made, a reverse mortgage entails a lender making monthly payments to the property owner, or in some cases, a lump sum or some other arrangement. Fees and interest are added to the balance each month, and the amount owed increases over time as home equity decreases. When the home is later sold, money from the sale is used to pay off the resulting debt. If the house is being inherited, heirs can refinance the home or pay off the reverse mortgage.
Some of the benefits of reverse mortgages are the following:
- Security for retirement.
- Borrowers do not have to leave their home.
- Property can be used to create available money even if there is a pre-existing home loan.
- Unlike income, money is considered a loan and not subject to taxation.
- If the home is worth less than the debt due to property value drops, heirs are not responsible for the balance.
At Harbor Mortgage Company, we offer reverse mortgages for homeowners in the Savannah, Georgia area. Our expert loan consultants can help determine if this is a good fit for you. Give us a call today to discuss your options!