A reverse mortgage, also called a Home Equity Conversion Mortgage or HECM enables people to withdraw some of the equity in their homes to use to supplement Social Security, meet medical expenses, made home improvement and other expenses.
It allows people to convert part of their home’s equity into cash without selling the house and having to move. The equity is the appraised value of the house less the existing loans. A reverse mortgage looks at the equity, age of the youngest borrower and the current interest rates to determine how much can be borrowed and over what time span. This money is then available in one of five different payment plans that include monthly payments and a line of credit. The important difference between a reverse mortgage compared to conventional mortgage or a home equity loan is that the resident homeowners do not have the reverse mortgage back as long as they live in that home.
A reverse mortgage is designed for people who have accrued equity in their home and now need cash to better their lives. It requires that borrowers are homeowners over 62 years old own their homes or have a low balance that can be paid at closing and live in the home. The house must be a single family or small multi-family residence with less than four units. The homeowner must live on the property and use it as their primary residence.
The primary disadvantage is that it lowers the equity in the home as payments are made and the borrowers, or mortgagees, must live on the property and use it as their primary residence while the Reverse Mortgage is in effect. The advantages are that older people can enjoy the value they built up over the years without having to sell their homes and move, and without passing debt along to their heirs.
Works Cited
U.S. Department of Housing and Urban Development. "Frequently Adked Questions abut HUDs Reverse Mortgages." 2013. U.S. Department of Housing and Urban Development. 6 6 2013 <http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten>.
