Reverse Mortgages

What is a reverse mortgage?

Reverse mortgages have been around for quite some time. Although it seems there is some confusion as to what exactly they are. To put it concisely, a reverse mortgage is a type of home loan for people over the age of 62 that requires no monthly payments. Sounds simple enough, right? Of course there is a little bit more to it than that. But don’t worry, we’re here to break it down for you.

How do reverse mortgages work?

A reverse mortgage, or Home Equity Conversion Mortgage (HECM) to give it its full title, is a type of loan that allows you to convert a portion of the equity on your current home into cash. So, in short, some of the money you’ve been paying over the years on your mortgage can be loaned back to you. Of course, this sounds a lot like a normal loan. Where a reverse mortgage differs is that, as stated above, you don’t need to start paying the money back straight away. In fact, you don’t have to pay the money back until you are no longer living in the residence. However, you will still be responsible for property taxes, home insurance and, of course, any on-going maintenance on the building. These mortgages are becoming increasingly popular around the world. The amount of reverse mortgages granted peaked in 2008 and 2009 at 110,000 per year.

Who is eligible?

Now, here’s the important bit, how do you know if you’re eligible? The first thing to be aware of is that these loans are designed for people approaching retirement age, so you must be 62 years of age or older to apply. The property you are attempting to get the loan for must also be your main residence. And the amount of money left on your mortgage must be covered by the amount you will receive. In the vast majority of cases this means you should not have a huge amount left to repay on your mortgage. In most cases you will only be to borrow up to 60 per cent of the property’s value.

If that all sounds a little complicated don’t worry, we’re here to help and make the process as simple as possible.

How will I receive the money?

You have three options when it comes to how you will receive the cash. The first of which is to choose to accept it as a lump sum, much like a traditional loan. The maximum amount you can receive is determined by a number of factors, which we go into in detail below.

The second option is to receive the money as monthly payments over a number of years, with the monthly amount negotiated with your lender. Alternatively, you can choose to draw on the money as a line of credit, as and when you need it. This is often the best way for most people to utilise a reverse mortgage and it should help keep your costs down.

The final option is simply a combination of the above. You can receive an initial lump sum, followed by monthly payments, or simply use the remainder of the loan as a line of credit.

How much can I borrow?

The amount of money you can borrow will depend on a number of factors. However, it has nothing to do with your credit rating as there are no repayments being made on your mortgage. The maximum lending limit, as is normally the case, will vary by county and will come down largely to how much your property is currently valued at, including any obvious repairs that need to be made. The other important factor in determining the size of your loan is how old you are. The older the borrower the higher the amount they can borrow. The maximum size of the loan is generally no more than $625,500. Current interest rates will also, of course, play an important part in how much you will receive.

The final thing that will be taken into account is the type of payment you require, so whether you are choosing to receive a lump sum, monthly payments or are using the loan as a line of credit.

When will the loan be repaid?

The loan will only be repaid when you, or your spouse, decide to sell your home, move somewhere else, or pass away. It is important that anyone considering applying for the HECM has some contingency plans made for who will be responsible for the loan repayments after you are gone.

Is a reverse mortgage right for me?

We’re not here to push everyone into borrowing when it might not suit them. So, the ideal candidate for this kind of mortgage should meet most of the following criteria:

  • The majority of your mortgage should already be paid off before retirement.
  • You should not be considering moving home any time soon.
  • You should have a plan in place for what will happen to your home if you or your partner suddenly passes away.

What are the benefits?

  • No monthly payments.
  • Borrowers can choose between a lump sum, monthly payments or using the loan as a line of credit.
  • No credit rating checks.
  • The reverse loan helps defend against unexpected future costs.

Why choose us?

We know how complicated the process of applying for a loan can be and how important it is that customers have total confidence in their lender of choice. And we’re also aware that reverse mortgages aren’t for everyone. That’s why we promise to keep you informed on every step of the application. We pride ourselves on providing excellent customer service to ensure the process is as transparent and as straightforward as possible. Costs will be kept to a minimum and jargon and legalese simplified and avoided as much as possible.

If you have any questions at all, or are simply wondering whether a reverse loan is right for you, please feel free to get in touch and we’ll do our best to answer any questions.

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