What is a Reverse Mortgage?

A Reverse Mortgage or Reverse Home Mortgage is for seniors over 62 years of age and is designed to help improve their retirement life style. In recent years, the reverse mortgage has gained popularity, because many seniors find themselves struggling economically. The reason a Reverse Home Mortgage may offer the best solution for so many is that you get to access a portion of your home equity without a requirement to make payments as long as you continue to live in the home full time.

Reverse mortgages are designed to help retirees with limited income use the equity in their home to pay for expenses like health care and monthly living expenses.

There are no restrictions on how the proceeds of the loan may be used, the loan does not have to be repaid until the borrower dies, sells their home, or permanently moves out. (there also have been safeguards added to protect the surviving spouse under the age of 62).

In addition, your ability to secure a Reverse Mortgage is not dependent on your credit history, income level, health or any other factors that are typically involved in securing a traditional mortgage.

The primary eligibility criteria for a Reverse Mortgage is that the borrower must own and reside in the home and be a senior 62 years of age or older. (In most cases second homes, apartment buildings and homes less than a year old are not eligible for a reverse mortgage.) The most popular reverse mortgage is the Home Equity Conversion Mortgage, or HECM. HECM Loans are administered and insured by the FHA (Federal Housing Administration) and it's completely safe.

The cash out that you get as a result of a reverse mortgage loan is not taxable, and in most cases doesn't affect other benefits like Social Security or Medicare. You retain the title to your home and do not have to make monthly repayments.

The loan must be repaid when the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. In the HECM program, a borrower can live in a nursing home or other medical facility for up to 12 months before the loan becomes due and payable.

Key factors that make a reverse mortgage attractive are:

  • No repayment of the loan as long as the borrower occupies the property as his/her primary residence.
  • Income, asset, or credit qualifications doesn't play a role.
  • Homeowners retain title to their home.
  • In most cases there are no tax or benefit deductions on the proceeds used as "income". (for verification of this, consult your tax advisor)

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