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Reverse Mortgage

If you are a senior and you have accumulated a lot of equity in your home, you can qualify for a reverse mortgage loan and use it for various purposes. Reverse mortgage programs are popular loan programs for seniors in the United States.

About reverse mortgage programs

A reverse mortgage program is also known as lifetime mortgage. These loans are only offered in the United States to seniors (aged 62 and above). Senior homeowners who have a lot of equity in their homes can qualify for these loans. Rather than making monthly mortgage payments to the lender, the homeowners can use the equity in their home to receive monthly payments from the lender. The borrower does not have the responsibility of paying off the loan till the time he lives in his home or expires. As the borrower doesn’t have anything to repay, a reverse mortgage can work as a source of tax free income. Many senior individuals have experienced that a reverse mortgage can be an ideal tool for receiving extra income to fulfil their various old age requirements.

How much can you get from a reverse mortgage loan?

The amount of money that you can get as a reverse mortgage loan is decided by the five important factors given below:

  1. The interest rate of the loan, as ascertained by the 1 year T-Bill of the U.S. Treasury, 1 Year CMT or the LIBOR index.
  2. The appraised value of the property, whether any maintenance work needs to be performed to the house and whether there are any prevailing liens on the property.
  3. Whether the payment is received as one time payment, line of credit or monthly payments. Line of credit will help you get the highest possible amount of money and at the same time, lump sum payment offers the cash instantly, however the interest rates are the highest. Monthly payments are fixed as a "term" payment. They are made to the borrowers for the rest of their lives regardless of how many years they survive.
  4. How old the senior is (the older the senior individual is, the higher amount of money he/she will get).
  5. The property value and whether that value is more than the countrywide loan limit fixed by the Department of Housing and Urban Development (HUD).

Costs and interest rates associated with reverse mortgages

The cost of acquiring a reverse mortgage from a private lender might be higher than the cost of other forms of equity conversion loans or mortgages. Precise costs are dependent on the specific reverse mortgage program the borrower is obtaining. For the most sought after form of reverse mortgage in the United States, the FHA-backed Home Equity Conversion Mortgage (HECM), the costs given below might be involved:

  1. Mortgage Insurance: 2% of the assessed property value
  2. Origination Fee: The limit is 2% of the initial $200,000 and 1% from then on, with an absolute cap/limit of $6000.
  3. Title Insurance
  4. Attorney, Title and County Recording Charges
  5. Real Estate Evaluation: $300–$500
  6. Survey fee (might be necessary): $300–$500

Furthermore, a monthly service charge which might range between $25 and $35 is typically summed up on a monthly basis with the balance of the loan.

In all these above instances, the expenses of a reverse mortgage can be funded with the loan proceeds itself.

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