As a homeowner with significant equity on your property, the challenge of repaying outstanding loans doesn’t have to cause a lot of stress in the long term. The U.S. Department of Housing and Urban Development(HUD) allows homeowners to convert part of their home equity into cash and receive monthly payments without having to relinquish their property ownership or move out of their house. What exactly is senior reverse mortgage?
A senior reverse mortgage is a type of loan that gives seniors (aged 62 and beyond) an opportunity to apply for money using their home as collateral. Typically, this loan doesn’t have to be repaid until the borrower moves out of the home or passes away – at which point the estate is given six months to repay the loan or be sold off to recover the balance. The difference between this and a regular mortgage is that in this case the borrower is not required to have an income to receive the loan. The borrower receives payment either in a lump sum or through monthly payments; and more importantly, the home remains intact and doesn’t change hands until the owner moves out permanently or dies. Can I use the payments to pay off outstanding loans? The nature of reverse mortgages is that the borrower has a lot more freedom on what they use the money for – and this includes paying off your loans. You have several options when applying for a reverse mortgage:
1. HECM Saver
This package is designed to reduce upfront insurance premiums which a lot of homeowners deem burdensome. The main drawback with this option is that it limits the amount a person can receive by up to 18%.
2. Single-purpose reverse mortgage
It is offered by different state agencies and not-for-profit organizations, and it has the lowest cost structure. This type of package is only offered to low-income households and can only be used for a specific purpose (such as home improvement projects or to clear property taxes).
3. Home Equity Conversion Mortgage
This is different from HECM Saver and is federally insured by the U.S. Department of Housing and Urban Development in order to maximize value to the borrower. The main advantage of this type of mortgage is that the borrower is allowed to use it for whatever purpose he or she wants: and that includes clearing old loans. Use HECMs to repay outstanding loans HECMs are without surprise the most popular type of reverse mortgage and account for over 90% of all reverse mortgages approved in the U.S. Private-sector reverse mortgages are also an option, but they tend to be more expensive and will eat up the value of your home more rapidly compared to HECMs. But like HECMs, they can be used for any purpose. Keep in mind that there are costs associated with reverse mortgages and these costs vary based on factors like the value of your home and the mortgage insurance premium. Do some research to find out how you can benefit and still reduce the risks associated with a reverse mortgage.