Reverse Mortgages in New Jersey
New Jersey is one of the most popular states in the US, with almost 9 million people residing in the Garden State. It is one of the smallest states in the US but also one of the most densely populated. As a result day-to-day living costs can be quite high and, occasionally, a little financial help is needed for some of its residents to get by, especially if those residents are nearing retirement age. This is where the Home Equity Conversion Mortgage (HECM), otherwise known as a reverse mortgage, comes in. Read on to find out how it can help you.
What is a reverse mortgage?
A reverse mortgage is a loan that allows the borrower to re-use a percentage of the money they’ve already paid off on their mortgage. In simple terms, you can convert some of the equity on your current home into cash. Its biggest selling point is that it doesn’t have to be repaid straight away. With the HECM you only have to make repayments when you leave the property you’re in for longer than 12 months, move from the property completely, or pass away. The borrower still maintains responsibility for the repayment of any on-going property taxes and day-to-day maintenance of the building.
Am I eligible?
It is very easy to qualify for a reverse mortgage once you meet the most basic criteria, that you are nearing retirement age, or are currently retired. In most cases you will need to be 62 years of age or older to take out the loan, though some lenders will allow people who are a few years younger to apply. You must also be in residence in the property you’re looking to take the loan out on and have no intention of leaving it in the immediate future. Most lenders will also insist that you have a significant part of your mortgage already paid off. You can usually borrow up to 60 per cent of the total amount of the mortgage, though some lenders will go as high as 80 per cent. Finally, the type of property you are living in can have an impact. Single-family homes, a 1-4 unit building or a federally approved planned unit are the most likely properties to be eligible for this kind of loan.
What are the fees?
It is vitally important with this or any loan you are looking to qualify for that you are completely aware of all the costs involved. With a reverse mortgage there will be general administration costs for things like document preparation and an appraisal of your property. On top of that there will also be a monthly servicing charge, which, in most cases, won’t exceed $30.
How can I receive the money?
One of the great things about the HECM is that you have a number of options when it comes to deciding how to receive the money. The simplest way is probably to request the cash in one lump sum, with the amount made in agreement with your lender. You can also receive the money in monthly payments or use it when you need it as a line of credit.
It is generally recommended that most people choose the line of credit option. It helps keep overall costs down and the smaller the loan you can get by on the better.
Finally, it is possible to use a combination of all three options. Though it’s always recommended to keep your borrowing as simple as you possibly can.
How much can I borrow?
As always with borrowing limits this is dependent on a variety of factors. Each lender will have different limits. The maximum amount you can borrow with an FHA reverse mortgage is $625,500, assuming the property is worth significantly more than that. Otherwise it will be a percentage of the overall value of the building, usually up to 60 per cent.
Other factors that will be taken into account include the age of the youngest borrower. The older the person taking out the loan the higher the amount they have access to. Current interest rates will, of course, play a significant factor in your borrowing limits.
When do I have to repay the loan?
The great thing about reverse mortgages is that you don’t have to start repaying them straight away. However you still will have to pay them back at some point and it is very important you have a plan in place for how you will do this. Repayments begin when the borrower has not been in residence in the property for more than 12 months, has sold the property or has passed away.
Reverse mortgages have occasionally gotten a bad reputation in the past when people have over-borrowed and wound up in a position where they, or their loved ones, are unable to pay back the loan.
Is a reverse mortgage right for me?
A reverse mortgage can be a very effective short-term form of finance if used correctly but that doesn’t mean it is an appropriate line of credit for everyone. Most people who will get a HECM will have the majority of their mortgage paid off and are not thinking of moving home any time soon. They will generally only be looking for a short-term form of credit and will have made plans for how the loan will be repaid on account of them suddenly becoming ill.
What are the benefits?
There are a number of benefits to taking out a HECM. These include:
- No initial repayments.
- No credit score checks.
- Options to receive the money in a variety of ways.
- The availability of credit to help ease the financial burden in retirement.
Why choose us?
It is always a big step taking out any kind of loan and a reverse mortgage is no different. However, with the right guidance it can be a terrific way of relieving potential financial pressures of unexpected costs experienced in retirement. We’re experts at giving people mortgage advice and have decades of experience helping people make the right decisions when it comes to borrowing.
We’re here to help, so get in touch with any questions about reverse mortgages in New Jersey and we’ll do our best to answer them.