Are you struggling to afford the rising cost of living? Mary Robb in Willow Park, TX, has been helping active adults, 62 and older, discover if a reverse mortgage is the right tool for them. With the updates in the last ten years to the reverse mortgage product, it might be time to explore how this product can improve your quality of life.
A reverse mortgage is a way for older Americans to convert some of their home equity to pay off their current mortgage — if they still have one — and create more cash flow to cover everyday expenses, home renovations, medical expenses, and other needs and goals. It’s different from any other kind of mortgage because you don't have to repay what you borrow until you leave the home or do not comply with the loan terms. You are still responsible for maintaining the home and paying all property taxes and homeowners insurance, as you would with a traditional mortgage.
There are different kinds of reverse mortgages, such as Home Equity Conversion Mortgages or HECMs, HECMs for Purchase, proprietary reverse mortgages or jumbos, and single-purpose reverse mortgages.
A Home Equity Conversion Mortgage or HECM is the official name for a government-insured reverse mortgage loan. Although insured by the federal government, it is only available through FHA-approved lenders like AAG. As a loan insured by the government, it has rules and requirements that other kinds of non-insured reverse mortgages may not impose.
While government-mandated insurance adds to the cost of HECM loans, it also adds important consumer protections and guarantees.
The maximum amount the FHA will insure on a reverse mortgage in 2022 is $970,800. Owners of homes that exceed the FHA’s limit may be suited for a proprietary or jumbo reverse mortgage to maximize their home equity payout.
The development of proprietary reverse mortgage loans was a natural outgrowth of HECMs. They were designed for and continue to serve owners of higher-value homes — those exceeding FHA loan limit guidelines — which allow borrowers to access more of their home’s value. For example, Jumbo Reverse mortgage loans take into account home values of up to $10 million, more than 10 times what is possible with a HECM.
As a best practice, most jumbo reverse mortgage lenders offer borrowers some of the same consumer protections as those available with a HECM. For example, the AAG Advantage Jumbo Reverse Mortgage Loan is a non-recourse loan just as a HECM is, meaning neither you nor your heirs will have to pay the difference if the loan balance exceeds the home’s value when the mortgage becomes due.
Since jumbo reverse mortgage payments aren’t FHA-guaranteed products, borrowers don’t have to pay upfront or ongoing mortgage insurance premiums, which can reduce your costs over the life of the loan.
Although jumbo reverse mortgages offer owners of high-value homes many advantages, protections differ from HECM protections. Therefore, prospective borrowers of jumbo reverse mortgages need to be clear about what these protections are.
A HECM for Purchase Loan works a lot like a HECM. You must be at least 62 or older (a non-borrowing spouse may be younger) and live in the home as your primary residence. And just like a HECM, the HECM for Purchase requires no monthly mortgage payments, and you don’t have to repay what you borrow until you leave the home or fail to comply with loan terms. You are, however, responsible for maintaining the home and paying all property taxes, homeowners insurance, and other applicable fees, as you would with a traditional mortgage.
To complete the home purchase, you provide the down payment, using proceeds from the sale of your previous home or other savings and assets, and your lender comes in with the rest of the money in the form of a HECM. The biggest advantage of financing your new home purchase this way is monthly mortgage payments are optional, although you are still responsible for home maintenance and payment of your property taxes and homeowners insurance.
A HECM for Purchase offers you the flexibility of the cash you have in hand or expanding your property search criteria to homes in preferred areas, or those with more of the amenities and upgrades you want.
This type of mortgage is offered by some state and local government agencies, as well as non-profit organizations, but they are not available everywhere. These loans may be used for only one purpose, which the lender specifies. For example, the lender might specify that the loan can only be used to pay for home repairs or the payment of property taxes. Most homeowners with low or moderate income may be eligible for these loans. These are not FHA-insured HECM loans.
How a Reverse Mortgage Can Help You?
As the driver of your retirement, you need to know where you want to go and the best way to get there. The key to your planning will be anticipating what roadblocks, if any, could stand in the way of your journey. You may be worried that Social Security won’t be enough to carry you through retirement. And even if you are fortunate enough to have a pension or other retirement account, you may be wondering whether these funds will last the length of your retirement.
Reverse mortgage loans have helped more than 1 million Americans nationwide access their home equity to find greater security in retirement. Here are some of the ways a reverse mortgage could help you: