Considering a Reverse Mortage

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With the “Baby Boomer” generation nearing retirement I thought it may be a good time to refresh Reverse Mortgages…

A reverse mortgage is a loan available to people over 62 years of age that allows a borrower to convert part of the equity in their home into tax-free income.  Reverse mortgages were developed as a means to help people in or near retirement with limited income.  The loan is called a reverse mortgage because the mortgage payback is reversed.  Instead of making monthly payments to a lender (as with a traditional mortgage), the lender makes payments to the borrower.  The borrower is not required to pay back the loan until the home is sold or otherwise vacated.  However, they are required to remain current on the tax and insurance payments.  With no monthly mortgage payments, reverse mortgages can help seniors access additional income and preserve their savings.  The borrower always retains title to or ownership of the home.

A reverse mortgage may be used for purchase transactions as well as refinancing.  A Reverse Mortgage for a purchase is primarily used when downsizing, relocating, reducing living expenses, or retiring.  Basic guidelines in a purchase transaction are (1) borrower must be at least 62 years old, (2) primary residence only, (2) eligible properties must be single family home, 2-4 unit home with one unit occupied by the borrower, or HUD-approved condominium project.

When purchasing a home, borrowers will be required to have a down payment.  The amount of down payment is calculated off of the age of the youngest borrower, current interest rates, home value, and loan charges.  They will also be required to pay the difference between the reverse mortgage funds and the home’s purchase price, in addition to any closing costs.  Seller concessions are not allowed.

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