Owning a house can be a wonderful investment, both financially and emotionally. It is the place where your children were raised, where your grandchildren visit, and where you call home. Unfortunately, owning a residential property can also be expensive. During uncertain financial times, many people consider consulting with reverse mortgage lenders to make ends meet. If you are considering this route to financial stability, here is a breakdown of the process that should help you make an informed decision.
What Is It?
A home equity conversion mortgage (HECM) is available to property owners in the United States when the equity of the house is greater than the amount left on the first mortgage. The borrower must be at least 62 years of age, and the property must be his or her principal residence. As you can see, this process is very regulated, and equity is legally defined as the value of the house minus what is still owed to the bank.
When a borrower takes out an HECM, they are, in essence, cashing in the equity of their property while still living in the house. Borrowers can receive a lump sum for the amount borrowed. They can also receive regular monthly payments, which are often used as a way to supplement retirement income. Borrowers can also receive a line of credit from the bank in lieu of a lump-sum or monthly payments. Some lending institutions will even consider combinations of these different payments. If a person has debts that need to be cleared up, then a large initial payment followed by monthly payments would be a perfect dispersal combination. This flexibility allows owners to tailor loans to fit their specific financial needs.
Who Takes Out An HECM
The normal profile for someone consulting with reverse mortgage lenders is a retiree in his or her mid-60’s. The age of the borrower is taken into account by banking institutions when considering an HECM application. A recent survey showed that 48% of applicants were facing financial hardship and needed the loan to continue their lifestyle. Over 80% of applicants stated that they wanted to ensure they would stay in their home until their death. The financial assistance derived from an HECM, coupled with the cessation of monthly house payments, will often lift any financial burden faced by the owner. Furthermore, the money received from an HECM is not taxable by the IRS. Many people considering an HECM are concerned that it will negatively affect their Social Security and Medicare benefits. Fortunately, since the loan is not taxed, it has no effect on these benefits.
In short, reverse mortgage lenders offer homeowners in their later years a way to use the value of their property without selling their homes. No monthly mortgage bills plus either a lump sum or monthly check from the bank ensures that borrowers are not burdened with financial concerns. Owners can also find comfort in the fact that they will be able to stay in their own houses for the rest of their lives. HECMs are a wonderful way to make sure the golden years are comfortable ones.