Qualifying for a Reverse Mortgage
To qualify for a reverse mortgage, you must be at least 62 and have paid off all or most of your home mortgage. Income is usually not a factor, and no medical tests or medical histories are required. If you seek an HECM, you also must undergo mortgage counseling from a government-approved “housing agency.” Other financial institutions offering proprietary reverse mortgages require similar counseling or homeowner education.
Your age becomes the major deciding factor of how much you can borrow. Apart from that the value of your home, and the current interest rate are also considered. If it’s an HECM reverse mortgage, the federal law limits the maximum amount that can be paid out.You can be paid in cash on a lump sum, in monthly instalments, over a line of credit, or a combination of all three.
Common Features
Reverse mortgages offer special appeal to older adults because the loan advances, which are not taxable and do not affect Social Security or Medicare benefits. Depending on the plan, reverse mortgages allow homeowners to retain title to their homes until they permanently move, sell their home, die, or reach the end of a pre-selected loan term. Basically, a move is considered permanent when the homeowner has not lived in the home for 12 consecutive months. So, for example, a person could live in a nursing home or other medical facility for up to 12 months before the reverse mortgage would be due.
Here are some points you have to take note:
Reverse mortgages tend to be more costly than traditional loans because they are rising-debt loans. The interest is added to the principal loan balance every end of the month. In other words – compounded interests.
Reverse mortgages uses up a good portion or all of the equity in a home which will at the end of the day eaves fewer assets for the homeowner and his or her heirs.
Lenders will charge origination fees and closing costs; some charge servicing fees which can vary from one lender to another.
Interest on is not deductible on income tax returns until the loan is paid off in part or whole for reverse mortgages.
Because homeowners retain title to their home, they are still responsible for taxes, insurance, fuel, maintenance, and other housing expenses in regard to that property.
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