A Primer On Reverse Mortgages In Williamsport

For homeowners 62 and above, a reverse mortgage might be a great way to supplement retirement income. Borrowing against the equity in your house is possible with this interest-free lending option. The money might be given to you in a flat sum, as regular monthly payments, or as a line of credit. 

Loan repayment is deferred until the residence is sold, the borrower permanently vacates the property, or the borrower dies. This is a fantastic option for supplementing retirement income or dealing with unforeseen costs. 

A reverse mortgage can be a useful source of income for some seniors who want to supplement their retirement income, pay for home improvements or medical expenses, or diversify their financial portfolio. However, reverse mortgages also have some drawbacks and risks they should be aware of before applying for one. 

Types of Reverse Mortgages  

• Home Equity Conversion Mortgage (HECM)  

This is the most common type of reverse mortgage. It is insured by the Federal Housing Administration (FHA). 

• Conventional reverse mortgage  

If the FHA does not insure this type of reverse mortgage. It may have different terms and conditions than a HECM. 

To qualify for a reverse mortgage, you must: 

• Be at least 62 years old
  
• Own your home outright or have significant equity in your home
  
• Be in good health and able to afford the property taxes and insurance on your home

What Borrowers Benefit Most From a Reverse Mortgage? 

According to D. Shane Whitteker, owner and chief broker at Williamsport mortgage company Principle Home Mortgage, this is best answered on a case-by-case basis. 

“This comes down to personal preference,” Whitteker says. “I think the person that could benefit the most is a person with low to average retirement funds. The reality is that these types of mortgages can be used as a tool to offset losses in the stock market which most people’s retirement accounts are tied to.  So, the idea in society is that these mortgages are best suited to people that have very little in retirement funds. That is not actually true. There are a lot of uses for the HECM mortgage option.” 

Amount Borrowed  

According to Whitteker, the amount you can borrow on a reverse mortgage will depend on your age and your home. 

“The amount you can borrow depends on the value of the home,” Whitteker says. “A calculation based on the value of the home and the ages of the borrowers is used to figure out how much money is available depending on the mortgage type chosen.  Basically the calculation is designed around life expectancy, future property value, and projected interest rate.  The idea is to balance these factors so the investor is not in a bad position when the HECM matures and the borrower is getting a reasonable amount of funds from their home.” 

The amount of money you can borrow with a reverse mortgage depends on your age, the value of your home, and the interest rate. The maximum amount that can be borrowed is typically around $1,000,000. 

There are several different ways to receive money from a reverse mortgage: 

Lump sum: You can receive the entire loan amount as a lump sum. 

Monthly payments: You can receive a fixed amount each month. 

Line of credit: You can borrow money as needed up to the limit of your loan. 
 

Benefits of reverse mortgages 

• You can use the money for any purpose you want
  
• You can choose how to receive the money
  
• You can stay in your home and retain ownership of it
  
• You don't have to make monthly payments on the loan
  
• You don't have to pay taxes on the money received
  
• You may qualify for a reverse mortgage even if you have low income or poor credit
  
• You may be able to increase your cash flow and reduce your reliance on other assets 

One big benefit of a reverse mortgage is that you continue to own your home, Whitteker says. 

“The property owners/borrowers still own the property when they have a reverse mortgage or HECM,” Whitteker says. “The bank or investor has a mortgage lien against the home much like when a person takes out a forward mortgage.  As long as you are alive and living in the home along with keeping up with the real estate taxes and property insurance, you own the home.” 
  

Drawbacks of reverse mortgages  

• The loan balance grows over time as interest and fees are added
  
• The loan reduces your home equity and may affect your ability to leave an inheritance to your heirs
  
• The loan may affect your eligibility for some government benefits such as Medicaid or Supplemental Security Income (SSI)
  
• The loan may have high upfront costs such as origination fees, closing costs, mortgage insurance premiums, and servicing fees
  
• The loan may have variable interest rates that can change over time
  
• The loan may limit your options to move or sell your home in the future
  
• The loan may require you to meet certain obligations such as maintaining the home, paying property taxes and homeowners insurance, and attending a counseling session.  
  

Qualification for Reverse Mortgage  

Several factors determine how much of a loan you can get with a reverse mortgage, including your age, the value of your home, the interest rate, and the type of reverse mortgage you get. Single-purpose reverse mortgages, proprietary reverse mortgages, and Home Equity Conversion Mortgages (HECMs) are just a few of the many types of reverse mortgages available. 

According to Whitteker. There is no age limit on getting a reverse mortgage. 

“There is no limit on age to get a reverse mortgage.” Whitteker notes. “The older the borrower, typically the higher the amount of money that can be accessed with the HECM.” 
 

Consult a Financial Expert  

A reverse mortgage is a loan in which the lender pays the borrower rather than the other way around. According to Whitteker, when applying for a reverse mortgage, you must speak with an independent counselor approved by the U.S. Department of Housing and Urban Development (HUD), who can explain the process, the pros and cons, and the alternatives to a reverse mortgage. 

“It is actually a requirement to speak to a counselor that is certified to provide HECM counseling in order to obtain a HECM,” Whitteker says. “These counselors can provide counseling prior to getting a reverse mortgage but it makes sense to do this in the context of applying for a HECM reverse mortgage.  When accessing the counseling after starting the application process, the counseling will be based on the specific scenario that the mortgage professional set up for you.” 

If you're considering a reverse mortgage, it's important to understand the terms and conditions of the loan and to talk to your local mortgage broker to see if it's right for you. Contact Williamsport’s mortgage broker, Principle Home Mortgage, at www.williamsportmortgages.com or call 814-308-0959.