How And When Will My Funds Be Distributed
You have a few options for your disbursements , and this is where some additional financial planning comes into play. Evaluating your other retirement income streams and long-term health care costs, for example, will impact how you choose to receive your reverse mortgage funds.
The FHA offers two reverse loan types: an adjustable-rate mortgage and a fixed-rate mortgage.
With an ARM, you can choose from these payment options:
Tenure: Set monthly payments for as long as you remain in the home
Term: Set monthly payments for a fixed period of time
Line of credit: Unspecified payments when you need them, until youve exhausted your funds
Modified tenure: A line of credit and set monthly payments for as long as you or your eligible spouse live in the home
Modified term: A line of credit and set monthly payments for a fixed period of time of your choosing
With a fixed-rate mortgage, youll get a one-time lump sum after you close on your loan. Youll want to have a solid plan in place for how to use the proceeds, whether its for paying off debt, living expenses or medical bills, for example.
Proprietary & Jumbo Loan Limits
If you hope to borrow more than the maximum loan amount of a HECM loan, consider a proprietary or jumbo reverse mortgage. You may be able to borrow more with these reverse mortgages, because private lenders are not subject to HUD rules. Understand, though, that HUD does not regulate the fees for these loans, and you will probably not have the same protections from foreclosure. Shop carefully, and even though counseling is not required for a nongovernment reverse mortgage, you may want to consult a HUD-approved reverse mortgage counselor before committing to any program. Making a decision about the type of mortgage payout that best fits your needs involves researching all of your available reverse mortgage options. Find out more about your options for taking reverse mortgage proceeds.
Are Reverse Mortgages Safe
Reverse mortgages are offered by Equitable Bank and Home Equity Bank . These two banks are federally regulated and licensed, which ensures that they are safe to use. You will never owe more money than your home is worth with a reverse mortgage.
CHIP is endorsed by the Canadian Association for Retired Persons and The Royal Canadian Legion. Equitable Bank is Canadas ninth-largest bank and is a publicly-traded company on the Toronto Stock Exchange.
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When Reverse Mortgages Are Appropriate For Eldercare
Many seniors are in a situation where they do not have the income or savings to pay for personal care, for home modifications to enable aging in place, or for long term care insurance. However, they do have financial resources tied up in their home ownership. For some of these seniors, a reverse mortgage is a good option. That said, every familys situation is unique, and in some cases, a reverse mortgage is not the best option. Follows is an exploration of varying scenarios and why different families might opt for or against the use of a reverse mortgage.
Single Seniors in Fair HealthReverse mortgages are a good option, as the elderly individual does not require immediate care. Many seniors in this situation will continue to live independently in their home for some years. And they can use the proceeds from a reverse mortgage to buy long term care insurance and / or make modifications to their home. This, in turn, makes the home safer and more accessible, which can prolong or allow them to age at home indefinitely.
What Are The Cons Of A Reverse Mortgage
Remember that old saying if it seems too good to be true, it probably is? Well, that applies to reverse mortgages too. Some of the disadvantages of taking out a reverse mortgage are:
- Reverse mortgages can significantly increase the amount of debt you carry, which can result in you having less to leave to your family, or other benefactors of your will
- Reverse mortgage interest rates are much higher than typical mortgage rates
- As you borrow more and more equity, interest starts to accumulate faster and faster
- There are only two lenders that offer reverse mortgages in Canada
- Additional setup costs can also add up and are deducted from the amount youll receive
- The only way to get out of a reverse mortgage is to sell your home or pass away
- Youll be subject to a penalty if you sell the home or pass away within three years of taking out the reverse mortgage
- If you pass away, the amount you borrowed plus interest must be repaid within a limited period of time
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How Do I Qualify For A Hecm
You have to meet the following FHA requirements to get a HECM:
Youre 62 or older
You and/or an eligible spouse who must be named on the loan even if he or she is not a co-borrower live in the home as your primary residence. An eligible spouse means you are legally married before applying for a reverse mortgage.
You have no delinquent federal debts
You own your home outright or have a high amount of equity in it
You attend a mandatory counseling session with a HECM counselor approved by the Department of Housing and Urban Development
Your home meets all FHA property standards and flood requirements
You continue paying all property taxes, homeowners insurance and other household maintenance costs as long as you live in the home
Top 8 Reasons To Take Reverse Mortgage
A reverse mortgage allows homeowners beyond 60 years of age to convert home equity into cash without selling the home.
Many individuals do not believe in the concept of a reverse mortgage. The process allows homeowners to secure some cash by converting the home into equity. It assists individuals in converting and supporting themselves financially.
The old-age individuals often search for where to get a loan in Ireland with bad credit and solve their financial problems. And reverse mortgage has emerged as a comfortable solution to it.
Lets first analyze- the reverse mortgage.
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Everything You Need To Know About Reverse Mortgages In Canada
Cashflow is a big concern for many older Canadians as they age and their income sources decline. For many, home equity represents their largest asset, and it plays a critical role in retirement planning, especially for those that werent able to take full advantage of an RRSP. Generally, the easiest way for seniors to unlock their home equity is to either sell the property or apply for a home equity line of credit . If those options dont make sense, retirement can be a financial struggle.
There is an option, however, that is sometimes overlooked. A reverse mortgage, a product specifically designed for Canadian retirees, is another way retirees can stay in their homes while accessing their propertys equity.
In the past, reverse mortgages have been seen as the opposite of good financial advice, getting seniors back into debt as they age. However, products have evolved over the years, and it could be worth reconsidering those old assumptions.
Be Sure To Explore All Options Before Taking Out A Reverse Mortgage
Reverse mortgages are complicated and usually not the best option for older homeowners seeking access to extra cash. Before taking out a reverse mortgage and tapping into your home equity, you should be sure to explore all of the options available to you. For instance, you might qualify for a state or local program to lower your bills or you could consider downsizing to a more affordable home.
You can learn more about reverse mortgages, as well as other available options for older homeowners, at AARP’s website at www.aarp.org/revmort. Even though you’ll have to complete a counseling session with a HUD-approved counselor if you want to get a HECM, it’s also highly recommended that you consider talking to a financial planner, an estate planning attorney, or a consumer protection lawyer before taking out this kind of loan.
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Reverse Mortgages Impact On Other Government Benefits
Reverse mortgage payments are not counted as income if they are spent on care in the same month as they are received.
As most elderly persons receive multiple benefits from the federal government, one should not consider a reverse mortgage independent of its impact on other benefits. Fortunately, the most common benefits, including Medicare and Social Security, are not impacted in any way by a reverse mortgage. However, Supplemental Security Income, Medicaid, and Veterans Pension eligibility may be affected. These vary state-by-state. But generally speaking, reverse mortgage payments are not counted as income, as long as they are spent in the same month as they are received. However, if the funds are allowed to accumulate month over month, they could push ones resources over the allowable limits.
Talk To A Mortgage Expert You Can Trust
Before you make any decisions on a reverse mortgage, speak with an expert who knows the ins and outs of everything to do with mortgages. Our trusted friends at Churchill Mortgage will equip you with the information you need to make the right decision.
About the author
Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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You’re In Control With A Reverse Mortgage
You worked hard to become a homeowner, and its important to us that we keep it that way. With a Canadian Reverse Mortgage, you always maintain control of your home*. In other words, you will never be forced to sell or move as a result of changing home values or earning power . And we guarantee the amount that you or your estate eventually has to repay will never exceed the fair market value of your home at the time it is sold*. Theres no reason your home should ever be a burden to you or your family.
If your home goes up in value, the appreciation is all yours. Simply maintain your property and pay the taxes and insurance. When you retire, you shouldnt have to give up the home you love.
How Reverse Mortgages Work
A reverse mortgage gives you access to a portion of your home equity, called the initial principal limit. This limit depends on four factors:
Your loan balance will grow over time as you receive payments. Interest accrues on the payments you receive, and interest accrues on that interest, too.
To get a reverse mortgage, youll have to pay several fees.
- Initial mortgage insurance premium of 2% of the original amount borrowed
- Annual mortgage insurance premiums of 0.5% of the remaining loan balance
- Third-party fees, such as a home appraisal, title search and insurance, surveys, inspections, and other fees
- Origination fee of $2,500 to $6,000, based on your homes value
- Monthly servicing fee of $30 or $35
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When A Reverse Mortgage Might Not Be For You
- You rely on certain government need-based benefits, such as Medicaid or Supplemental Security Income , which may be disrupted if you take out a reverse mortgage.
- You want someone to inherit your home free and clear of any debt when you die.
- You think you may want to move.
- Your health might require you to move into an assisted living or nursing facility for more than 12 months.
- Your spouse will not be a co-borrower. A non-borrowing spouse will not receive any further reverse mortgage proceeds after a borrowing spouse dies, and in some circumstances, they may not be able to keep living in the home.
What Documents Are Required To Get A Reverse Mortgage And Where Do I Find Them
If you are approved for a Reverse Mortgage you will be required to prepared and send the following documents. Note that individual circumstances vary and this is not intended to be a comprehensive list.
- 2 forms of identification
- Verification that the property is your principal address
- Signed application
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Will A Reverse Mortgage Affect My Social Security Or Medicare Benefits
Reverse mortgage loan proceeds are non-taxable monies. The proceeds do not affect Social Security or Medicare benefits in most cases. To be safest, most borrowers utilize the new reverse mortgage credit line feature instead of payments sent to them to avoid any income restrictions. It is advised to seek professional income advice from a CPA or tax accountant for further details.
When The Loan Has To Be Repaid
With a HECM, the loan typically has to be repaid when one of the following events occurs:
- the borrower dies
- the home is no longer the borrower’s principal residence
- the borrower sells the home or transfers title, or
- the borrower defaults on the loan terms, like by failing to keep up with insurance premiums or property taxes.
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Do This To Avoid Foreclosure
Another danger associated with a reverse mortgage is the possibility of foreclosure. Even though the borrower isnt responsible for making any mortgage paymentsand therefore cant become delinquent on thema reverse mortgage requires the borrower to meet certain conditions. Failing to meet these conditions allows the lender to foreclose.
As a reverse mortgage borrower, you are required to live in the home and maintain it. If the home falls into disrepair, it wont be worth fair market value when its time to sell, and the lender wont be able to recoup the full amount it has extended to the borrower. Reverse mortgages are also required to stay current on property taxes and homeowners insurance. Again, the lender imposes these requirements to protect its interest in the home. If you dont pay your property taxes, your local tax authority can seize the house. If you dont have homeowners insurance and theres a house fire, the lenders collateral is damaged.
About one in five reverse mortgage foreclosures from 2009 through 2017 were caused by the borrowers failure to pay property taxes or insurance, according to an analysis by Reverse Mortgage Insight.
When Is The Best Time To Get A Reverse Mortgage Wait Or Act Now
Reverse mortgages offer homeowners a way to stay in their own homes while opening up access to some of your home equity. Your loan amount is determined by your age, current interest rates and the value of your home. The amount of cash available to you also depends on the amount you owe on a traditional mortgage if anything.
While there is no one right answer, below are a few guidelines to help you answer the important question when is the best time to get this loan:
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Supplement Social Security Benefits
As the government raises the retirement age in the United States, workers with strenuous or unpleasant jobs may want out early. Retiring at 62 won’t get you the maximum Social Security benefit, but with enough home equity, a reverse mortgage can boost that monthly check and get you out of the rat race.
Am I Eligible For A Reverse Mortgage
In order to be eligible for a reverse mortgage, typically you must:
- Own your home
- Be at least 60 years of age
- Live in your home for more than half of the year
- Have a single-family home, a 1- to 4-unit building or a federally-approved condominium or planned unit development
- Have no liens on your home or qualify for a large enough cash advance from the reverse mortgage to pay off any existing liens
- If your home needs physical repairs to qualify for a reverse mortgage, qualify for a large enough cash advance from the reverse mortgage to pay for the cost of repairs
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Reverse Mortgages Your Spouse And Heirs
Both spouses have to consent to the loan, but both dont have to be borrowers, and this arrangement can create problems. If two spouses live together in a home but only one spouse is named as the borrower on the reverse mortgage, the other spouse is at risk of losing the home if the borrowing spouse dies first. A reverse mortgage must be repaid when the borrower dies, and its usually repaid by selling the house. If the surviving spouse wants to keep the home, the mortgage loan will have to be repaid through other means, possibly through an expensive refinance.
Only one spouse might be a borrower if only one spouse holds title to the house, perhaps because it was inherited or because its ownership predates the marriage. Ideally, both spouses will hold title and both will be borrowers on the reverse mortgage so that when the first spouse dies, the other continues to have access to the reverse mortgage proceeds and can continue living in the house until death. The nonborrowing spouse could even lose the home if the borrowing spouse had to move into an assisted living facility or nursing home for a year or longer.