Reverse mortgages are a strong tool with the help of which a house-owner can secure a cash flow without incurring any tax.
What a reverse mortgage is all about
Reverse mortgage differs from what we call traditional or ‘forward’ mortgage in a number of ways. Unlike the traditional ones, reverse mortgages do not require you to have a steady income. What is of utmost importance in reverse mortgages is that the house must be owned by you. If you are the owner of a house, reverse mortgages will enable you to access the money you have built up as equity in your house. Reverse mortgages are extremely useful during the later part of their lives for old, retired people who own a house.
In order to be eligible for a reverse mortgage, you have to be at least 62 years old and must own and occupy your home as your primary residence as long as the loan term is in operation. Only the following types of homes qualify for a reverse mortgage: single-family residence, buildings having one to four units, condominiums, and mobile homes constructed on a permanent foundation later than July 1976. Remember that cooperatives are not eligible except in certain areas of Los Angeles and New York. You will also require counseling from a counselor approved by the HUD before or after completing a HUD application.
Advantages of reverse mortgages
In the case of a reverse mortgage, you will be able to keep the ownership of your house for life. The rest of the equity will be passed on to your heirs. Another great benefit of a reverse mortgage is that its proceeds are free of tax. You can use the proceeds for different things such as repair and improvement of your house, education of your grandchildren, medical care, travel etc. As long as you are occupying the house as resident, no loan repayment or payments are needed. Reverse mortgages also do not require any income, medical or credit conditions to be fulfilled.
Various types of reverse mortgages
Reverse mortgages are mainly of three types: federally insured, lender insured and uninsured. There are three reverse mortgage products as well: Home Equity Conversion Mortgage (HECM), Fannie Mae Home Keeper Reverse Mortgage, and Cash Account. These products are distinguished by the type of residential property, payment types, loan amount, processing fees as well as interest on the loan balance.
How to draw money
You have a few options to choose from while deciding how to draw money from your reverse mortgage. You can draw a single lump sum amount, or prefer regular monthly advances, or even a credit account.
There is little doubt that reverse mortgages are of great help to people in the golden years of their lives.