A reverse mortgage is a unique financial product available to homeowners who own the home in which they live and are at least 62 years of age. Reverse mortgages have recently made headlines as a way for those living on a fixed income to obtain additional funds each month. Reverse mortgages are special because they do not require any montnly mortgage payments for as long as you live in the home, provided that you remain current on your responsibilities as a homeowner.
Your responsibilities as the borrower of a reverse mortgage are not very different from your responsibilities as a homeowner. In order to remain elibile for a reverse mortgage, you must remain current on your homeowner's insurance, real estate taxes, and home maintenance, as well as live in your home as your primary residence. If you do these things, there will be no required monthly mortgage payments for as long as you live in the home.
Reverse mortgages have several disbursement options available in order to make the product customizable to each individual's situation. Reverse mortgage disbursement options include a lump sum, a line of credit, monthly payments, or a combination of these options. The lump sum reverse mortgage disbursement option is exactly what it sounds like. It is a one-time payment of all the funds for which you qualify with a reverse mortgage. The lump sum reverse mortgage disbursement option is based off of a fixed interest rate. What the line of credit reverse mortgage disbursement option does is give you the funds from the reverse mortgage in a line of credit to be used at your leisure. The reverse mortgage monthly disbursement option allows you to receive payments each month, either for your tenure in the home or for a set term. Lastly, you can customize the reverse mortgage to combine any of these disbursement options in order to best fit your lifestyle.
A reverse mortgage interest rate can be fixed or adjustable. The only reverse mortgage disbursement option available with a fixed rate is the lump sum option. This option has been the most popular recently because it allows you to access the greatest percentage of your home's equity. Fixed interest rates vary from day to day but are currently between five and six percent. All other disbursement options for reverse mortgages are based upon an adjustable interest rate. An adjustable interest rate often begins in the low two percent range, but can increase significantly over the life of the loan.
One of the most prominent reverse mortgage misconceptions is that reverse mortgages are more expensive than traditional financing. Though this can be true, the largest fee associated with the product is paid to the federal government for insuring the reverse mortgage. This government fee helps ensure the stability of this program as well as protect you from ever owing more than your home is worth. This fee is equal to two percent of the maximum claim amount on Standard reverse mortgages.
The Home Equity Conversion Mortgage (HECM) Saver program give those who do not want to pay two percent in mortgage insurance a different option. With the reverse mortgage saver, the mortgage insurance is only .01% of the maximum claim amount. That being said, the reverse mortgage saver does not allow you to access as much of your home's equity as the Standard program.
The question "What is a reverse mortgage" is a common question in today's economy. Though its answer has many details, the most important of which is that it is a product that can help you maintain your financial independence and decrease your worries. To find out more about what a reverse mortgage is, request a reverse mortgage guide or speak with a reverse mortgage specialist today.