When an applicant for a reverse mortgage has successfully completed the application process, they will be entitled to the disbursement of funds in the form of a line of credit, monthly installments, or a lump sum. The initial outlay is the first part of your reverse mortgage income. At the end of this period, the loan funds are disbursed. The owner accesses the funds in the form of the selected payment option.
Any existing housing debt is repaid. A new tax is placed on housing. The owner can use the loan proceeds for any purpose. Only a lump sum reverse mortgage (one-time outlay), which provides you with all your income at once when your loan closes, has a fixed interest rate.
The other five options have adjustable interest rates, which makes sense, since you borrow money over many years, not all at once, and interest rates are constantly changing. Variable-rate reverse mortgages are linked to a benchmark index, often the Treasury Constant Maturity Index (CMT). The amount of funds available in a reverse mortgage is based on the age of the youngest borrower, the value of the home, and current interest rates. You can choose to receive funds in a lump sum, a line of credit, monthly payments, or a combination of both.
The funds received are tax-free and can be used for just about anything. Reverse mortgages are available with fixed or variable rates. Borrowers who choose a fixed-rate loan will receive their funds as a lump sum of one lump sum. A lump-sum disbursement with an adjustable rate is also available.
A line of credit and monthly advances have an adjustable rate. The advisor should also explain possible alternatives to the HECM, such as government and non-profit programs, or a single-use or exclusive reverse mortgage. Ideally, anyone interested in applying for a reverse mortgage should take the time to thoroughly learn how these loans work. You cannot leave any funds in the loan for future drawings, as future drawings with the fixed rate are not allowed.
If the loan balance exceeds the value of the home at the time of maturity, no debt will be transferred to the borrowers' heirs, since reverse mortgages are non-recourse loans. The Department of Housing and Urban Development (HUD) requires that all potential reverse mortgage borrowers complete a HUD-approved counseling session. In fact, many people use their reverse mortgage to delay receiving Social Security benefits so they can receive a higher monthly payment. With a reverse mortgage, instead of the landlord making payments to the lender, the lender makes payments to the homeowner.
Based on the results, the lender may require funds from loan proceeds to pay for things such as property taxes, homeowners insurance, and flood insurance (if applicable). Depending on the loan option you choose, these fees may include an opening fee, closing costs, a mortgage insurance premium (mandatory for HECM loans) and a monthly service fee. In fact, just like with one of these loans, a reverse mortgage can provide a lump sum or line of credit that you can access as needed, depending on the amount of home you've paid for and the market value of your home. If you're 62 or older and want money to pay your mortgage, supplement your income, or pay for health care expenses, you may consider a reverse mortgage.
Therefore, as you withdraw funds and interest accrues on the loan, the balance increases and your equity position in the property decreases. If there is an existing mortgage balance to pay, there is often room in the value of the loan for the lender to recover the money spent on your behalf when selling the loan. However, if your home is worth more, you might consider a giant reverse mortgage, also called a reverse sole property mortgage. When it comes to pricing, reverse mortgage lenders are now more willing than ever to help pay the costs of reverse mortgages whenever they can.
Now that you know the basic facts about a reverse mortgage, learn more about how much you can qualify for with a reverse mortgage using RMF's free reverse mortgage calculator. . .