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Reverse Mortgages Information
A reverse mortgage is a good way to get retirement cash but get all the pros and cons first.
To get a reverse mortgage loan, or HECM, you must be 62 years of age or older. A reverse mortgage will allow you to obtain some of the equity in your principal residence as cash. This cash may be a line of credit which you take money from as you require it, or you can instead have a fixed monthly amount paid to you. You will always retain full ownership of your home, and the loan does not have to be paid back unless you sell the home, move out of it or die.
The biggest advantage a reverse mortgage has compared to a conventional mortgage loan is that you are not required to make any monthly payments to the lender. Should you already have a conventional mortgage on your house this has to be paid off with some of the funds from the reverse mortgage. This obviously leaves a smaller amount of money for you but you no longer have monthly mortgage payments to make.
The total amount which you owe at the end of the reverse mortgage is the total cash you have received from the lender, either in the form of a lump sum or as monthly payments to you, plus the amount of the interest which has accrued on the loan. In the United States the Federal Housing Authority fixes the maximum amount which the HECM lender can lend to you, according to the value of the residence, the level of current interest rates and the age of the homeowner who will receive the loan.
Fixed rate HECMs are subject to a fixed rate of interest which never changes during the term of the loan. Payments made to the borrower remain at the same fixed amount over the entire period of the mortgage. An adjustable rate HECM has fluctuating levels of payments which depend on current interest rates. The amount of the payments to the borrower increases if the interest rate falls or decrease if the interest rate rises.
Most types of home are accepted for an HECM loan. A few types of residence do not qualify, and some have special rules applied to them. To be accepted the home must meet FHA property standards and must satisfy flood requirements. The residence must be of 1-4 units, with the borrower occupying one of these units. The residence may be a single family home, a HUD-approved condo or an FHA approved manufactured home, to qualify.
The home owner must take part in an obligatory HUD counseling class, which is intended to protect senior citizens, and to give them the opportunity to get personal guidance, full information about legitimate HECM lenders, and counselling regarding what their options are to an HECM. The counselors involved in this are not selling anything and provide information only.
A reverse mortgage loan is always secured by the owner's equity in the home, and this is the only guarantee given to the lender. The law states that an HECM borrower must get a mortgage insurance policy, of sufficient amount to cover the total costs of the loan, which are not covered by the selling price of the residence. The HECM lender does not require to know the credit score or total income of the borrower, because he will be paid in full regardless of this.
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Reverse mortgages information