Reverse Mortgage in
Are you considering a Home Equity Conversion Mortgage (HECM), or reverse mortgage, but have no idea what it entails besides what you read about reverse mortgages on, say, AARP’s website? You’re not alone. The reverse mortgage process can be confusing, and each person’s situation will be different. Here’s what you can expect for how much you can borrow, how you can receive your payments, and what some of the costs will be on your reverse mortgage.
The amount of money you can borrow with a reverse mortgage depends on three factors: your age, the value of your home, and the interest rate of the loan. The older you are, the more money you can borrow. Your borrowing power also increases with the value of your home, and is affected by the interest rate; the lower the interest rate, the more money you can borrow.
HECM reverse mortgages are FHA-insured, so they are subject to the FHA’s upper lending limit of $679,650. For higher-value homes (typically $1.2 million plus) many lenders offer jumbo reverse mortgages, which are not insured by the FHA, but follow the guidelines for qualification set by FHA..
You can use a reverse mortgage calculator to get a good idea of how much money your financial institution. Lender will lend you.
You can expect three different ways to get payments on your reverse mortgage: a line of credit, a monthly payment (term or lifetime), a lump sum, or some combination of all three. A fourth option is a reverse mortgage for purchase. Here’s how each payment option works.
Line of Credit
With a line of credit, the money in the reverse mortgage is held on standby, and withdrawn by the homeowner when needed. The value of a line of credit increases as the value of the home appreciates. Yes, you earn interest on the line of credit for the amount that remains in the line of credit.
There are two kinds of monthly payments: term and tenure. With a term payment, the homeowner receives fixed monthly payments for a set term, like five years. Tenure payments provide a fixed monthly payment for as long as the homeowner uses the home as their primary residence, even if the loan balance exceeds the value of the home.
With a lump sum payment, the homeowner receives the entire balance of the reverse mortgage when the loan closes. Then, the homeowner can use it to pay off another mortgage or purchase a new home. There may be limitations on a full lump sum payment depending on your current loan balance for a HECM. For the Jumbo Reverse Mortgage, there is no limitation. You can take the entire amount at close.
Rather than stay in the same home, a borrower can use a reverse mortgage to purchase a different home. This can be useful for people who want to downsize or move to a new location.
There are many benefits to getting a reverse mortgage, but bear the costs in mind as well. Some reverse mortgage fees include origination fees, mortgage insurance premiums (MIPs), appraisal fees, closing costs, and servicing fees. Interest is another cost you will incur on your reverse mortgage. Reach out to a lender if you have more questions about reverse mortgages.
Are you in Berkeley and ready to get a reverse mortgage? If so, apply today to get started on your loan.