Reverse Mortgages
What is a reverse mortgage?
A reverse mortgage is a home loan (used for any purpose) where a home owner, 62 and older, can access the equity (cash) built up in their home.
The HUD-insured Home Equity Conversion Mortgage (HECM) is the program that is used. As demand increases, more reverse mortgage programs from different organizations will become available.
It is called a reverse mortgage because you borrow money from a lender, but the lender makes monthly payments to you, rather than you making monthly payments to the lender. All interest is paid at the end of the loan, rather than in the beginning.
What are some of the benefits of a reverse mortgage?
- Strengthen your personal and financial independence.
- Help pay for health care or other needs.
- You can never lose your home in foreclosure as long as you maintain the property tax and insurance payments.
- The loan is only paid off when the house is sold by you or your heirs, or all borrowers move out of the house.
- Keep your Medicare or Social Security benefits.
- Use it as a credit line and draw upon it as needed.
- Get the best of both—get cash now and have a balance in reserve to use as a credit line.
As the homeowner receives monthly cash income, the loan balance increases. In the following twelve-month example, the homeowner begins with a debt-free home. As money is received by the homeowner, the mortgage grows. By the end of month twelve, the homeowner owes the bank $6,000 plus $232.44 interest. All Reverse Mortgage loans have a variable rate.
Assumptions*
|
Regular monthly advances |
$500 |
|
Annual interest rate |
7.0 % |
|
Monthly interest rate |
.583% (.07 / 12) |
|
Month |
Beginning Balance |
Interest |
Ending Balance |
Cash Disbursement |
|
0 |
0 |
0.00 |
0.00 |
$500.00 |
|
1 |
$500.00 |
$2.92 |
$502.92 |
$500.00 |
|
2 |
$1,002.92 |
$5.85 |
$1,008.77 |
$500.00 |
|
3 |
$1,508.77 |
$8.80 |
$1,517.57 |
$500.00 |
|
4 |
$2,017.57 |
$11.77 |
$2,029.34 |
$500.00 |
|
5 |
$2,529.34 |
$14.75 |
$2,544.09 |
$500.00 |
|
6 |
$3,044.09 |
$17.76 |
$3,061.85 |
$500.00 |
|
7 |
$3,561.85 |
$20.78 |
$3,582.63 |
$500.00 |
|
8 |
$4,082.63 |
$23.82 |
$4,106.44 |
$500.00 |
|
9 |
$4,606.44 |
$26.87 |
$4,633.31 |
$500.00 |
|
10 |
$5,133.31 |
$29.94 |
$5,163.26 |
$500.00 |
|
11 |
$5,663.26 |
$33.04 |
$5,696.29 |
$500.00 |
|
12 |
$6,196.29 |
$36.15 |
$6,232.44 |
$500.00 |
*Many criteria are considered when determining the reverse mortgage loan amount, interest rate, etc.
