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The ins and outs of reverse mortgages 

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In 2023, the average monthly Social Security payment will be only $1,693.88; many retirees will need to get creative to keep up with escalating costs. Some homeowners over the age of 62 use a unique type of financing called a reverse mortgage to access the equity they have built up in their homes in order to enhance their incomes while still remaining in their homes. 



Reverse mortgages are designed to help retirees, but they can backfire if the borrower doesn't know what they're doing. Learn more about reverse mortgages and whether or not they are right for you by reading this guide. 


Reverse mortgages are defined. 

Homeowners 62 and older who have paid off their mortgage may qualify for a fha reverse mortgage and use the proceeds as tax-free cash. With a reverse mortgage, the borrower does not make monthly payments to the lender like they would with a traditional mortgage. 


What is the procedure for a reverse mortgage? 


Those who qualify for a reverse mortgage often have no mortgage on their property. Even if they have paid off their principal mortgage, they may not be allowed to borrow the full value of their home. 


The principal limit is the maximum amount a homeowner can borrow and is based on several factors, including the age of the youngest borrower or eligible non-borrowing spouse, the interest rate, the ceiling on HECM mortgages ($1,089,300 in 2023) and the value of the home. 


The homeowner's age, the market value of the home, and the interest rate all factor into the amount of equity that can be borrowed against the home. If the borrower has a HECM with a variable interest rate, the amount may rise. Choices available at a variable rate include: 


All borrowers are required to make equal monthly payments, and at least one must use the home as their primary residence. 

Payments are scheduled to be made on the same date each month for a predetermined number of months. 

A predetermined amount of money that can be borrowed repeatedly. 

Loan repayment terms that include both an ongoing line of credit and a specified number of fixed monthly payments for as long as you remain in the house. 

However, if you choose for a HECM with a set interest rate, you will be paid all at once. 


Monthly interest on a reverse mortgage means you'll still need to come up with money for things like taxes, insurance, and maintenance. 


Reverse mortgages are most commonly used by homeowners to augment retirement income, make necessary house repairs, or pay for unexpected medical costs. According to Bruce McClary, a representative for the National Foundation for Credit Counseling, “in each situation where regular income or available savings are insufficient to cover expenses, a reverse mortgage can prevent seniors from turning to high-interest lines of credit or other more costly loans.” 



Regulations for obtaining a mortgage in reverse 

The primary borrower must be 62 or older to qualify for a reverse mortgage, while some lenders may extend eligibility to borrowers as young as 55. The following are examples of additional eligibility requirements: 


You must either have paid off your mortgage in full or have made significant payments toward it (often half or more). 

The home must serve as the primary residence for the buyer. 

Defaulting on any federal debt is strictly prohibited. 


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