Advantages of an Oakland Park Reverse Mortgage
To understand the benefits of an Oakland Park reverse mortgage you need to understand how a reverse mortgage works. What is it? And how can it help you?
In this article, we will cover the above questions to gain a better understanding of this special kind of mortgage.
What is a Reverse Mortgage?
A reverse mortgage allows persons 62 years of age or older to convert their home equity into a financial product that can be used to supplement their income. It is also known as a HECM or home equity conversion mortgage.
What makes reverse mortgage solutions unique is that unlike other types of mortgages, there are no monthly payments to be made by you. Instead, the lending institution is the one to disburse funds to you. This can be done in one of three ways:
- You can open a line of credit which you can use in the event of an emergency
- You can elect to receive monthly payments from the lending institution
- You can receive your home’s equity as a lump sum
- A combination of any of the above
So why would the bank be willing to give you money? How do they make back their profits?
Once the beneficiary of the reverse mortgage moves out of their home permanently (usually 12 months) or passes away, the lending institution will take over possession of the property.
Simply put a reverse mortgage allows you to live off your home’s equity.
Some conditions have to be met before you qualify for a reverse mortgage. This includes:
- Your property should not have an existing mortgage. If it does, part of the reverse mortgage will help to clear any outstanding balance. Say for example your property has a value of $200,000 and has an outstanding mortgage of $100,000. The amount you will get for your reverse mortgage is $100,000.
- You must own the property. You should have your name written on your home’s title and either own the home outright or have a small enough mortgage remaining that it can be cleared by proceeds from the reverse mortgage.
- You must be residing in your home. The primary purpose of this type of loan is to allow seniors to live in their own homes, so this condition has to be met.
As the beneficiary, you will be required to take a counseling session with a counseling agency that’s approved by the U.S Department of Housing and Urban Development. By the end of the counseling session, you should be able to weigh the pros and cons of each.
Benefits of A Reverse Mortgage
It serves as a retirement lifeline
The Economic Policy Institute reports that many American couples only have approximately $5,000 in savings by retirement age.
Unfortunately, even more, families have no savings at all by retirement age. This is where a reverse mortgage loan comes in handy. It can help ease cash-flow issues.
With proceeds from a reverse mortgage, you can travel the world and pursue your bucket list goals.
Takes Care of Mortgage Payments
Reverse mortgages are the perfect way to rid yourself of monthly mortgage obligations. The National Reverse Mortgage Lenders Association reports that more than 50% of the borrowers use a reverse mortgage to clear any outstanding mortgages they might have in their homes.
Others use a reverse mortgage to establish a line of credit. Unlike HELOC or a home equity line of credit, a line of credit based on a reverse mortgage cannot be reset or frozen.
In addition, a reverse mortgage helps ease the burden of heirs who take care of their aging parents. The proceeds from the reverse mortgage are used to take care of the expenses that were burdening the adult children.
Stretches Out Retirement Savings
Most people after retirement rely on social security benefits as their main source of income. By taking a reverse mortgage loan, borrowers are able to extend the life of their retirement benefits.
Delaying claiming your social benefits is a good thing. The longer you take to claim your social security benefits the more your benefits grow. According to the IRS, the increase could be up to 8% a year depending on what a person used to make.
Part of the reason why the subprime mortgage crisis happened is that many people did not know what they were buying. One good thing that came out of that is that the government has made it mandatory for reverse mortgage borrowers to receive counseling before signing anything.
When borrowing a reverse mortgage, you are required to have a counseling session with an independent HECEM counselor who will take you through the features of your reverse mortgage as well as explain your responsibility to you.
If you are not sure that a reverse mortgage is for you and would like to learn more including our interest rate and other fees, feel free to get in touch.