Northwoodmortgage Reverse Mortgages

Reverse Mortgages

A reverse mortgage lets you borrow money by using your house as collateral. This option gives you access to about 40% of the current appraised value of your home if you’re ever in need of cash.

In return, interest and fees are added to your loan balance each month, causing your mortgage loan balance to increase and home equity to decrease.

Unlike a traditional mortgage, you only pay back the reverse mortgage if you move from your home – because of death, moving out of the home, or selling the home. Although you’re not required to make regular payments, you must continue paying homeowner’s insurance and property taxes, in addition to keeping the property in good condition.

What is a Reverse Mortgage and How It Works?

If you owe money on your home but are considering a reverse mortgage, qualifying for it means trading your current mortgage loan for a larger loan. Some of the money borrowed via the reverse mortgage will be used to pay off your current mortgage. This implies that people who owe a lot on their current mortgage may not receive a lot of cash from their reverse mortgage.
This option can still free up the money you were previously using to make monthly mortgage payments so you can spend it on other things.

Homeowners can access up to 40% of the current appraised value of their home based on their age and that of their spouse, interest rate of their loan, and on the location and type of home, which affects it’s value. Generally, you will enjoy a higher borrowing limit (principal limit) if:

  • You’re an older borrower
  • Have lower interest rates
  • Have a higher valued home

There are three main options for receiving your reverse mortgage funds:

1. Lump sum with fixed interest rate

The borrower can withdraw all the available amount at once. This amount is usually lower since you can’t benefit from unused credit growth, plus you incur higher costs for paying interest and fees on the entire loan amount. This option can be risky for younger borrowers in the event they outlive their loan funds

2. Line of credit with an adjustable interest rate

Allows for limited withdrawals during your first year, with the remaining funds being accessible in the second year. It costs less than other options due to only paying interest and fees on the money you plan on using. This allows you to continue to grow any unused credit.

3. Monthly payout with adjustable interest rate

Limits your withdrawals during the first year, with the remaining funds being accessible in the second year. You receive a monthly payout that supplements your income. You can choose between:

  • Term – fixed monthly payouts for a given number of years
  • Tenure – continuous fixed monthly payouts provided they don’t exceed a maximum mortgage amount indicated in your loan documents

You will incur interest and fees only on the amount you’ve drawn so far, which lowers the cost. The growth in your unused credit is factored into your monthly payout amount. Keep in mind that this option can be combined with a line of credit.

Reverse Mortgage – Pros & Cons

Pros

  • You can use the funds for any expense
  • Older borrowers have a higher borrowing limit
  • Funds are not taxed as income.
  • Funds can be received in a lump sum or over time
  • No regular payments are required.
  • The full amount only becomes due when the home is sold, or if both homeowners move out.
  • Clients have the option to repay the principal and interest in full at any time. Upon repayment, an interest rate differential may apply (maximum of three months’ interest).
  • A prepayment amount will apply on repayments within the first three years. This may be waived or reduced in the event of death or a move into a long-term care facility or retirement residence.

Cons

  • Reverse mortgages are expensive, since you owe not only the amount borrowed, but interest and fees as well
  • The amount you owe increases over time, and it gradually reduces your home equity

How to Qualify For Reverse Mortgage

Eligibility for a reverse mortgage solution depends on:

  • The age of the borrower – the younger one between the homeowner and spouse or co-borrower must be 60 years old and above
  • Location and type of home – lender must approve
  • Medical, income, or credit qualifications

There are several requirements that reverse mortgage borrowers must follow to avoid losing their home to foreclosure, including:

  • Paying property taxes and homeowner’s insurance on time
  • Keeping your home in good repair
  • Keeping your home as your principal residence

Why Trust Northwood Mortgage For Your Reverse Mortgage Needs?

A reverse mortgage may be the right solution for you, but it’s important that you learn about the reverse mortgage basics before making the decision.

At Northwood Mortgages, we boast a qualified team of reverse mortgage specialists who can help to pair you up with the top reverse mortgage lenders near you. Our reverse mortgage brokers will first understand your needs and assess your current situation before searching for the best reverse mortgage rates that will maximize your funds and help you plan for your future and retirement.

FAQs

Can any homeowner over 60 get a reverse mortgage?

No. People who still owe a lot of money on their existing mortgage may not have sufficient equity to pay off their current mortgage with a reverse mortgage. In such a situation, a reverse mortgage may not be a viable solution for your cash needs.


What should I do if I’m planning to sell my home?

If you want to sell your home while having a reverse mortgage, perhaps to downsize or move into a retirement home, you should keep in mind that your equity will likely be lower due to the interest and fees added to the loan. That said, there is a chance that the value of your home may have risen over time, allowing you to gain back some equity. Once you sell your home, you will have to repay the loan in full, leaving you with an amount equivalent to the current equity of your home.


What happens if I owe more on my reverse mortgage than the value of my home?

If you choose to sell your home yet your loan balance is higher than your home’s worth, the lender won’t necessarily ask you to pay the difference. Once you sell the home for the appraised fair market value, your mortgage insurance will pay the remaining balance. But if your heirs want to keep the home, then they will be required to repay 95% of the home’s appraised value or the full loan balance – whichever is less.


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