Gulf Coast Bank Explains Reverse Mortgages
Courtesy Gulf Coast Bank, New Orleans LIVING WELL Magazine
With the aging of our population, it is easy to see why a reverse mortgage can be utilized to supplement retirement income. It is a popular home loan that was created specifically for senior homeowners, 62 years and older, who want to convert part of their home’s equity into income. The Home Equity Conversion Mortgage (HECM) loan is the oldest and most common reverse mortgage insured by the government through the Federal Housing Administration (FHA).
You can make home improvements, travel, pay off old debt, pay off an existing mortgage, get cash or increase your monthly income. You can take advantage of any or all of these options and NEVER have to make a monthly principal and interest payment as long as you live in your home. You still pay for property taxes, insurance and necessary repairs.
This type of mortgage is simple to qualify for––any person or persons on the title must be at least 62 years young, the home must be paid for or have a low mortgage balance, and you must live in your home as your primary residence. It is that simple.
The loan is repaid at one of three instances: should you decide to sell, if you move out of the home for one full year, or at the time of your passing. Once you leave the home for one full year that is when the loan is considered due and payable. If you physically move from the property (but still own the property) for one full year you will have two options ––either refinance the mortgage, paying off the reverse loan, and start making a monthly payment on the new loan or you can put the property up for sale and pay off the reverse loan. At the time of your passing, the property will revert to your heirs and they will have the same two options.
A reverse mortgage can be used for your individual needs. This is one time in your life that older is better. HECM loans have no income or credit qualifications, which makes them a great resource to generate financial support for seniors. An added benefit to the program is that the proceeds are not taxable, but you should consult your tax advisor.
There are several ways that you can choose to receive loan proceeds. The first is to receive a lump sum, which gives you the maximum amount that is available less any existing mortgage balances against the home. The second way is through a line of credit that works like a savings account. You are free to withdraw from it at any time. The third way to receive proceeds is a monthly supplement, which is a guaranteed payment to you every month. The payment schedule can be for as long as you live in your home or you can set it up to receive payments for a certain amount of time. If you set it up for a term, when the term ends this loan is still not considered due. This means you still do not have to make a payment to the lender or move from the home.
If you think a reverse mortgage can benefit you, and have heard that when you pass away the lender takes over the property, please keep reading! The title will always be in your name. Reverse mortgages are non-recourse loans. This means, if the HECM loan balance exceeds the home’s value at maturity, there is no recourse to you, nor your estate. The maximum amount owed would be the current market value as long as you or your estate sells the property to pay off the debt.
Reverse mortgages include consumer safeguards, such as HUD third party counseling, to ensure that the homeowner fully understands the mortgage.
This should be a stress-free time in your life and a reverse mortgage could possibly help you or someone you know. There are up-front costs associated with a reverse mortgage, so you may want to consider all of your options. Since each senior’s situation is unique, we suggest you talk to one of our experienced reverse mortgage professionals. They can help you explore your reverse mortgage options, answer your questions and see which program is best suited for you.
For more information, please refer to the advertisement on the opposite page to contact your local Gulf Coast Bank & Trust Co. Reverse Mortgage Loan Originator.