When one hears the term “reverse mortgage”, you might simply scratch your head. We are all familiar with what mortgage is. However, a reverse mortgage may not ring a bell.
A reverse mortgage program is a type of loan that is designed specifically to target seniors. This loan product allows eligible senior homeowners to tap into their home equity by converting it into readily-usable cash.
For American seniors who have paid a significant amount of money towards their mortgage and have built a significant home equity, this is a very good loan to take advantage of.
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The Home Equity Conversion Mortgage (HECM) is a reverse mortgage product offered by the Federal Housing Administration. This program is backed by the FHA and is funded by a commercial lender or bank.
One very obvious advantage of a reverse mortgage loan is you can convert your equity into cold cash. However, there are more hidden perks to this loan program that many tend to overlook.
You can use the funds however you wish.
How the money is used is up to the senior’s discretion.
The funds can cover emergency medical expenses, pay for your home’s utility, supplement existing funds for prescription drugs or even put up an investment account. You have total freedom to decide. It is best to use the funds to pay for something worthwhile or to invest it and earn more.
The Lender Pays You
In a reverse mortgage, you do not pay the lender a monthly payment. Instead, it is the lender who pays you.
The lender will disburse money through three disbursement options. It can be in a form of a lump sum given to you once the loan is closed, a line of credit which you can withdraw from until the fund is exhausted or through monthly payouts. You get to choose one or a combination of these methods.
The Loan Does Not Become Due Until the Senior Moves Out
One big advantage of the reverse mortgage program lies on when this loan becomes payable.
In most mortgages, you begin to start paying the loan off the moment you receive the borrowed money. In a reverse mortgage, the loan does not become due. You will not make any payments to the lender.
The only time the loan becomes due is one the senior decides to sell the property, move out or dies.
This does not mean that you are free from debt, however, you have a good amount of time to save up for it or grow your money so you won’t have to suffer once the bills come rolling in.
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They Make Sure You Know What You’re Doing
If you decide to take an HECM loan from the FHA, you will be required to take an HECM counseling course. This signals the start of the loan process. It aims to help you decide if a reverse mortgage it really beneficial for you or not.
During the counseling, the senior is educated with everything there is to know about the HECM program. The counselor will talk the advantages and the disadvantages of having this loan, as well as the tax implications when taking this loan.
After the counseling, the counselor will make recommendations, however, it is still up to you to decide whether to push through with the reverse mortgage plan or not. The FHA just want to make sure you are well-informed before you make your final decision
Seniors who own their homes even after their retirement may take this loan program and put it to good use. The very home they live in can actually be a great source of wealth just waiting to be used.
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