To maintain their lifestyles climate of escalating costs of living, many Coral Springs, FL seniors secure reverse mortgages on their homes to help live a quality existence during the golden years of their lives. For homeowners thinking about the reverse mortgage option, it helps to understand how the instruments work.
Explaining Reverse Mortgages
Similar to other mortgages, a reverse mortgage is simply a loan on a condominium, townhouse or single-family home obtained from a mortgage lender. The home equity serves as collateral for the loan.
Unlike first or second mortgages, home equity loan or a home equity line of credit, which have stringent credit and income requirements, reverse mortgage borrowers do not have to meet these conditions.
In addition, most of these loans require borrowers to make monthly payments to repay their obligations. However, a reverse mortgage eliminates monthly payment because the entire amount of the loan, interest and other costs become due when the borrower dies or sells the home.
Mortgage lenders use a Federal Housing Administration (FHA) formula to determine the maximum amount of a reverse mortgage loan the borrower qualifies for under the program.
The calculations take into account the following factors:
• age of the borrower (at least 62)
• appraised value of the home
• home must have a free and clear title
• current mortgage interest rates
If the home currently has an existing mortgage, the homeowner can use proceeds from the reverse mortgage to pay off the mortgage.
If the home appraises for a higher value, the borrower might qualify for a larger loan amount, depending on the lending limits. However, a key point for the Coral Springs, FL homeowner to consider when applying for a reverse mortgage is that the mortgage debt grows significantly larger over time.
Borrowers also have an obligation to perform maintenance and repairs to upkeep their homes, maintain updated homeowners’ insurance policies, and pay real estate taxes.
Borrowers have a variety of options to choose from when deciding how to receive the proceeds.
Available options include:
• Lump Sum: Taking a lump sum of cash at the closing
• Line of Credit: Withdrawing any amount, at any time, up to the loan limit
• Term: Drawing down equal monthly payments for a predetermined number of years
• Tenure: Receiving equal monthly payments for as long as the homeowner lives in the property
Coral Springs, FL reverse mortgage customers can also choose a combination of the above options
Under reverse mortgage rules, as long as at least one homeowner live in the home as a primary residence, and maintain repairs taxes and insurance, the mortgage cannot become due. This eliminates any possibility of outliving the mortgage.
If the home no longer functions as the primary residence for a period of 12 months, or the borrower (s) becomes deceased, the estate must repay the obligation. If the estate puts the home up for sale to repay the loan, and the proceeds prove insufficient to pay off the reverse mortgage, the mortgage lender takes a loss or seeks reimbursement from FHA.
If the sale produces funds above the amount of the reverse mortgage debt, the money goes to the estate.