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Reverse Mortgages: Great Options, Great Rates, Increased Cash Flow

Reverse Mortgages: Great Options, Great Rates, Increased Cash Flow
August 6, 2012 wpengine

By now you have undoubtedly heard that interest rates on mortgage loans are at some of the lowest rates in half a century. From purchase loans to refinances, rates remain below 5 percent. But what you may not know is that interest rates on reverse mortgages are also now at the lowest rates in history. That, coupled with the fact that fees for reverse mortgages are much lower than in recent years ,makes for a compelling reason to consider a reverse mortgage if you’re over the age of 62 and are looking to increase your cash flow or have additional funds available to you at your discretion. But first, you’ll need to determine if a reverse mortgage is right for you.

A reverse mortgage allows for home-owners over the age of 62 to gain access to the equity in their home without taking on a monthly mortgage payment. A reverse mortgage can provide a home-owner with several options for obtaining additional income, paying off an existing mortgage or even allowing you to purchase a new home. But how do they work?

One option is to obtain a reverse mortgage that offers monthly payments to the homeowner. The payments are drawn from the equity of the home. These payment options can be structured for a set period of time (term) or lifetime payments. Another option is to receive a lump-sum payment, whereby the homeowner determines how much equity he’d like to draw from his home to use as he like. A third option is to use a reverse mortgage as a line of credit. This means the funds will be available if necessary through a credit line. If not needed, the money remains
untouched. Best yet, a reverse mortgage can be structured to be a combination of any of these three.

There’s even better news. In many cases, homeowners will not be subjected to income or credit qualifications. Moreover, because reverse mortgages are insured by the Federal Housing Authority (FHA), this type of mortgage loan provides added security without risk of a bank changing the terms or conditions of the loan.

Are you a good candidate for a reverse mortgage?
If you’re over the age of 62 and you have equity in your home, there is a great chance that you are. The additional income can be used to pay off medical bills, relocate to be closer to family members, downsize into a smaller home, or just to have additional cash at your disposal. Of course, the amount of money made available to you will depend on a number of factors, including the amount of equity you have in the home and your age (in many cases, the older you are, the more you may qualify for). Keep in mind, though, you will still be responsible for paying property taxes and insurance on the home as well as upkeep of the home.

The process for applying for a reverse mortgage is much the same as applying for any loan, only many things are easier. You won’t have to prove employment or credit so the process is less labor-intensive. Just like with any mortgage loan, you should start by contacting your mortgage professional and inquiring into his or her experience with reverse mortgages. If he doesn’t facilitate these types of loans, he will certainly refer you to a qualified colleague who will be happy to help you.