Reverse Mortgage – Frequently Asked Questions – Part 1
How much money will you receive from a reverse mortgage?
The amount of money that can be received from a reverse mortgage usually ranges between 40% and 60% of the home’s appraised valuation. In situations where the seniors are older, the amount of money they can receive in the reverse mortgage is usually higher.
What are the factors that are used by the financial institutions to determine the amount given to the homeowners?
There are 3 factors that are used to underwrite the homeowner:
- The age of the youngest of the homeowners,
- The value of the home, and
- The current rate of interest.
If there is an existing mortgage on the home or other liens, they must be paid off at the time a reverse mortgage is taken out. There are also closing costs involved in obtaining a reverse mortgage.
How does the homeowner receive their funds?
The homeowner can receive their funds on the reverse in any of the following manners:
- All the money at once;
- Line of credit that the homeowners draw against;
- Firm payments on a specific schedule;
- Guaranteed payments for as long as the homeowner lives.
How does a low credit score impact the homeowner’s ability to obtain a reverse mortgage?
Unlike in traditional mortgages, a low credit score is not a significant drawback when obtaining a reverse mortgage.
How does someone qualify for a reverse mortgage?
There are a variety of qualifications necessary to meet the standards of obtaining a reverse mortgage.
- To start with the homeowner must be at least 62 years of age.
- They must own their home and it must be their primary residence.
- There must be equity in the borrower’s home.
What are the benefits, if any, of homeowners obtaining a reverse mortgage?
Benefits of obtaining a reverse mortgage:
- As long as the homeowner complies with the terms of the loan, they don’t have to make any payments on the loan.
- With a reverse mortgage homeowners will not lose their Medicare benefits or Social Security benefits.
- Homeowners sometimes end up owing more than the equity in their homes. (The loan is underwritten.)
- Reverse mortgages can provide homeowners with a sense of financial freedom. It gives them cashflow to live with dignity.
The law firm of Schlissel DeCorpo LLP has been helping families deal with mortgage and foreclosure problems for more than 30 years. We can be reached at 718-350-2802, 516-561-6645 or 631-319-8262 or by e-mail at info@sdnylaw.com.
When Should A Homeowner Take Out A Reverse Mortgage
A reverse mortgage is a relatively complex financial product. It requires careful consideration by the homeowner before undertaking to get involved in a reverse mortgage. Here are some of the situations where a reverse mortgage may be applicable for homeowners:
- The homeowners are running out of money and may want to stay in their home until they die.
- If the homeowners are in a position to sell their home, and then can purchase a smaller less expensive home, this will generally be a better route to take then obtaining a reverse mortgage.
- The homeowner must be capable and healthy enough to live in their home and maintain it for a reverse mortgage to be an acceptable alternative.
- The reverse mortgage is not a good idea if the homeowner wants their children or heirs to inherit their home.
- The reverse mortgage may be a good idea if the reverse mortgage creates a source of income for the homeowners which gives the homeowner sufficient income to live in their home and maintain the home.
Before homeowners get involved with a reverse mortgage, it is recommended they consult with an attorney that is knowledgeable regarding reverse mortgages.
The law firm of Schlissel DeCorpo LLP has been helping families deal with mortgage and foreclosure problems for more than 30 years. We can be reached at 718-350-2802, 516-561-6645 or 631-319-8262 or by e-mail at info@sdnylaw.com.
Reverse Mortgages And What You Need to Know About Them
Reverse mortgages are generally available only to homeowners who are 62 years of age or older. The purpose of the reverse mortgage is to allow the homeowner to turn the equity in their home into cash while retaining the ownership of their home. This is often used by seniors who may find themselves real estate rich and cash poor. This is not necessarily a route that every senior should take. It is strongly advised that you consult with an attorney who deals with reverse mortgages before you get involved in placing a reverse mortgage on your home.
Interest on Reverse Mortgages
Interest on reverse mortgages is compounded. This means the homeowner ends up paying interest on both the principal and the interest which has already accrued each and every month of the loan. Compounded interest rates are different than the simple interest rates. Compounded interest rates increase the amount of the loan and cause it to grow at an increasingly faster rate than the standard mortgage. In most cases the large part of the equity in the home ends up being used up by the reverse mortgage.
Non-Recourse Loans
Reverse mortgages are non-recourse loans. This means when a homeowner defaults on the loan or the loan cannot otherwise be repaid, the lender cannot look at your other assets or the homeowners’ estate assets to meet the outstanding balance on the mortgage loan.
The law firm of Schlissel DeCorpo LLP has been helping families deal with mortgage and foreclosure problems for more than 30 years. We can be reached at 718-350-2802, 516-561-6645 or 631-319-8262 or by e-mail at info@sdnylaw.com.
