The Three Basics of Reverse Mortgages
1. Never a Monthly Payment:
A HECM is the only mortgage that never requires a payment until you pass away or move out of your home. You are required to always pay taxes and insurance on your home, but whether you take a line of credit, monthly checks, or a lump sum, you will never be required to make a payment during your lifetime as long as you live in your home.
However, you do have the option of making payments if you wish to have more equity than cash.
2. Never Owe More Than What the Home is Worth:
When you permanently move out of the home, whether you have passed away or are still alive, the value of the home is responsible for paying off the mortgage – not your assets or those of your estate or your heirs. AND, whatever value is left belongs to you or your heirs. If there is a deficit, the difference is forgiven, regardless of any other assets you may have. At all times, you or your heirs have the ability to pay off the mortgage and keep the home. If the mortgage is higher than the home value, you can purchase the house back from 95% of the current appraised value.
3. Tax Free Money From Your Home Equity:
A reverse mortgage is simply a financial tool to turn equity in your home into cash that can be used for many different purposes that will enhance and extend your retirement plan. If you have a mortgage currently, it could eliminate your monthly payment and allow you to use that monthly cash flow in a better way than creating equity that is not readily accessible. A Reverse Mortgage is really very similar to an IRA or a pension.
You have spent many years putting the money into a special account called home equity and now you can draw it out, – except without a tax penalty! The mortgage terms are insured by the Federal Housing Administration (FHA) and called a HECM (Home Equity Conversion Mortgage)