A reverse mortgage is usually paid for with the proceeds from the sale of the home. In general, reverse mortgage loans must be repaid when you move out of your home or when you die. However, you may need to repay the loan sooner if the home is no longer your primary residence, if you don't pay your property taxes or homeowners insurance, or if you don't keep the house in good condition. When either of these cases occurs, the reverse mortgage loan expires and is payable.
The most common method of repayment is through the sale of the home, where the proceeds from the sale are used to repay the reverse mortgage loan in full. Generally, you or your heirs would assume responsibility for the transaction and receive the remaining equity in the home once the reverse mortgage loan has been repaid. When any of the above cases occurs, the reverse mortgage loan becomes payable. One of the best ways to repay the loan is by selling the home, where you can use the proceeds from the sale to repay the full amount of the loan, including interest.
As with a term mortgage, housing is the guarantee of a reverse mortgage. When the homeowner moves or dies, the proceeds from the sale of the home go to the lender to repay principal, interest, mortgage insurance, and reverse mortgage charges. Any proceeds from the sale that exceeds what is borrowed will go to the owner (if he is still living) or to the owner's estate (if the owner is deceased). In some cases, heirs may choose to pay the mortgage in order to keep the home.
If you are the owner of a home, condo or townhouse, or a manufactured home built on or after June 15, 1976, then you may be eligible for a reverse mortgage. This is a common approach for people who want to keep a home but don't have the money to pay a reverse mortgage in advance. reverse mortgages are a difficult area of finance because they are frequently subject to scams and abusive lending. If you have further questions, talk to your tax advisor about the implications of the reverse mortgage tax and how they may affect you.
The Consumer Financial Protection Office (CFPB) warns homeowners against reverse mortgage scams, which can target unsuspecting seniors to fraudulently hand over money. A reverse mortgage can be a useful financial tool for senior homeowners who understand how loans work and what the pros and cons entail. For most reverse mortgages, you must repay the loan if the home is no longer your primary residence. The mortgage insurance premiums paid by borrowers go to a fund that covers the losses of lenders when this happens.
Ideally, anyone interested in applying for a reverse mortgage should take the time to thoroughly learn how these loans work. In New York, where cooperatives are common, state law also prohibits reverse mortgages in cooperatives, allowing them only in residences and condominiums for one to four families. While reverse mortgages don't have income or credit rating requirements, they do have rules about who qualifies. A reverse mortgage is usually repaid when you sell the home or when the owner dies.
After all, a key advantage of this loan, designed for homeowners age 62 and older, is that it doesn't require the borrower to make monthly mortgage payments. That's where reverse mortgages come into play, especially for retirees with limited incomes and few assets, but also for retirees who want to diversify their income and reduce investment risk, sequential risk and longevity risk. .