Reverse Mortgages: An Option For Seniors
Homeowners who are 62 years of age and older and who have equity in their homes can qualify for reverse mortgages. Reverse mortgages are not for everyone and not everyone over the age of 62 years of age will qualify. However, to those that do qualify, it is an excellent mortgage loan program where it will relieve financial stress where the homeowner can still keep their home until they either decide to sell or until they pass. Reverse mortgages are mortgage loans where the mortgage lender advances you money all at once, or in monthly installments and you do not have to pay any monthly mortgage payments until you sell your home or until you die. The best way to explain reverse mortgages is through a case scenario:
Case Scenario For Reverse Mortgages
Say John Smith is 62 years old and has owned his home for the past 20 years and has been laid off over a year ago and is behind on all of his monthly payments. He is even behind on his mortgage payments and is barely getting by through working odd and end jobs. His home is worth $200,000 and still owes $50,000 to Chase Bank. He tried to refinance his home but every lender denied him because he has no income, poor credit, recent late payments, and is in the intial stages of foreclosure.
Qualifying For A Reverse Mortgage
The above case will be a perfect case where reverse mortgages will suit John Smith. John Smith will qualify for a reverse mortgage where the reverse mortgage lender will order an appraisal to verify that the home is worth $200,000. Whatever the appraisal comes in, the reverse mortgage lender will advance John Smith a certain loan to value dollar amount depending on the age bracket. The younger you are, the lower the loan to value the borrower will get.
Loan To Value On Reverse Mortgages
For example, 62 years old is still fairly young so the maximum loan to value ( LTV ) for this age group might be 60% loan to value. At 65 years of age, the loan to value might be 65%. At 70 years of age, the loan to value might be 70%. At 75 years of age, the loan to value might be 75%. At 80 years of age, the loan to value might be 80% loan to value. The older you are, the more money the reverse mortgage lender will advance you. So on this example, the reverse mortgage lender will advance John Smith $120,000, where the first mortgage of $50,000 will be paid off and the net amount John Smith will receive will be $70,000.
Homeowners Insurance And Property Taxes
John Smith is still responsible to pay his homeowners insurance and property taxes but does not have to pay any more mortgage payments until he either sells his home or until he dies. His mortgage balance of $120,000 will increase every month because his monthly mortgage payment he does not have to pay gets added on to the original mortgage balance. Bottom line is that his equity in his home will be decreasing every month unless his home appreciates in value.
Reverse Mortgages: Equity And Not Credit Nor Income Is Key
Mortgage lenders that specialize in reverse mortgages are mainly concerned with the equity you have in your home and are not concerned with credit, income, assets, nor liabilities. You can have bad credit, no income, recent late payments and still qualify for reverse mortgages as long as you are 62 years old or older and have equity in your home. Your current home can be under foreclosure and if you are 62 years old and you have equity, you will still qualify for reverse mortgages.
Reverse Mortgages: Can Pay It Off Anytime
There are no pre-payment penalty with reverse mortgages. In the event if you decide to sell your home, you can pay off the reverse mortgages with the proceeds of the sale. If you live 50 more years and the balance of your reverse mortgage loan is much higher than the value of your home, you still do not have to pay the balance of the reverse mortgage. A deal is a deal.
As mentioned earlier, you still need to pay all other housing expenses such as property taxes, homeowners insurance, and all utilities. You need to be an owner occupant and you cannot rent your home and live elsewhere. You will be a violation of your mortgage terms.
Again, reverse mortgages are not for everyone and the key is that you need equity in your home to qualify. For those homeowners with very little or no equity, reverse mortgages will be a difficult option.
Mortgage Rates And Terms On Reverse Mortgages
For those folks interested in reverse mortgages, reverse mortgages have higher rates and higher closing costs so if they are interested in selling their home within the next year or two, they need to weigh in the fees and costs involved in getting a reverse mortgage. If you are a homeowner and are interested in learning more about reverse mortgages, please contact me at 262-716-8151 or at www.gustancho.com .