A reverse mortgage is a loan in the sense that it permits a qualifying homeowner to borrow money, but it works differently from a house purchase loan. A 62-year-old homeowner with significant home equity can borrow against the value of their property and receive funds in the form of a lump sum, set monthly payment, or line of credit. In contrast to a forward mortgage, which is used to purchase a home, a refinance reverse mortgage los angeles does not require the homeowner to make any loan payments during their lifetime.
Reverse Mortgage Varieties
Reverse mortgages are classified into three types. The home equity conversion mortgage is the most prevalent (HECM). The HECM represents almost all of the reverse mortgages that lenders give on property values less than the conforming loan limit (established annually by the Federal Housing Finance Agency) and is the sort that you're most likely to acquire, therefore this article will focus on it. This form of mortgage, also known as a Federal Housing Administration (FHA) reverse mortgage, is only available through an FHA-approved lender.
If your house is worth more, you can choose a jumbo reverse mortgage, also known as a proprietary reverse mortgage.
When you take out a reverse mortgage, you have six options for receiving the proceeds:
When your loan closes, you will receive all of the funds at once. This is the only option that has a set interest rate. The remaining five have variable interest rates.
Equal monthly payments (annuity): The lender will provide consistent payments to the borrower for as long as at least one borrower remains in the home as a primary residence. This is often referred to as a tenure plan.
Term payments: The lender makes equal monthly payments to the borrower for a predetermined length of time, such as 10 years.
A line of credit is money that the homeowner can borrow as needed. The homeowner pays interest only on the amounts borrowed from the credit line.
Equal monthly payments plus a line of credit: The lender guarantees consistent monthly payments for as long as at least one borrower lives in the home as their primary residence. If the borrower requires additional funds at any time, they can use the line of credit.
Term payments plus a line of credit: The lender makes equal monthly payments to the borrower for a predetermined length of time, such as 10 years. If the borrower requires more funds during or after the term, they can use the line of credit.
It is also feasible to use a reverse mortgage known as a “HECM for purchase” to acquire a property other than the one in which you presently reside.
Who Should Consider a Reverse Mortgage?
A reverse mortgage may resemble a home equity loan or a home equity line of credit (HELOC). A reverse mortgage, like one of these loans, can give a lump sum or a line of credit that you can use as needed, based on how much of your home you've paid down and the market worth of your home. However, unlike a home equity loan or a HELOC, you do not need to have an income or good credit to qualify, and you will not be required to make any loan payments as long as you live in the property as your primary residence.
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