How does a reverse mortgages work?
For traditional mortgage loans, borrowers are required to make monthly payments to purchase a property over a given period of time. When you take out a reverse mortgage, however, the lender will pay you as the homeowner.
Reverse mortgages use a portion of your home equity and turn it into cash. Think of it as a form of advance payment on the equity in your property.
The income you receive is exempted from tax. Borrowers do not pay back the loan provided that they live in their homes. Once you die, permanently leave the home or sell it, you, your partner or estate would be required to pay back the money. At times, this implies selling the home to raise the funds to pay back the reverse mortgage loan.
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Reverse Mortgages in Maryland
Although other types of reverse mortgages exist, including single-purpose loans and proprietary loans, the most popular type is the Home Equity Conversion Mortgage (HECM). The HECM comprises nearly everything the lenders provide on property values under $765,600. For the purposes of this article, we’ll discuss HECM since this is the type of reserve mortgage that you are probably going to take out. However, if the value of your home is more than $765,600, you may want to consider a proprietary reverse mortgage, which is also known as a jumbo reverse mortgage.
Depending on your circumstances, you may receive your proceeds in any of the following ways:
1. Lump Sum Payment: this option is just as it sounds. It allows you to receive your money at once or in one lump sum payment once you close the loan. This means you get all of your proceeds in one huge payment, at once, when your mortgage loan closes. Unlike other options, it has a fixed rate, so if you took out a fixed-rate loan, the lump sum payment is the only way you can obtain your proceeds.
2. Scheduled Monthly Payments: provided that at least one reverse mortgage borrower stays in the home, the lender can make regular payments. So if you want to be paid each month or would like to control your spending, you should consider this payment option. This scheduled monthly term payment option is also called a tenure plan.
3. Monthly Term Payments: here, the borrower will receive equal payments every month for a given period depending on how long you want to receive those monthly installments e.g. 10 years.
4. Line of Credit: when you choose this option, you’ll be able to access the money whenever you want. You’ll only be required to pay interest on the amount that you actually borrow, and the amount in your credit line increases annually based on the interest rate of your mortgage loan.
5. Line Of Credit and Monthly Payment Combination: when you choose this option, you will receive regular payments provided that one or more borrowers stay in the home as their principal residence. However, a borrower can access the money at any time.
6. Line Of Credit and Term Payments Combination: the lender provides equal payments every month for a given period depending on the borrower’s preferences. However, the borrower can access their line of credit whenever they require more money.
Maryland Reverse Mortgage Eligibility
Not everyone can qualify for a reverse mortgage. The primary homeowner has to be at least 62 years old. Nonetheless, homeowners with a spouse below 62 years can still take out a reverse mortgage if they meet other qualifications, including the following:
• The property must be owned outright by you or you have a first mortgage that you can borrow against.
• You must pay off any mortgage loan you may have using the money from the reverse mortgage.
• The home has to be your principal or primary residence.
• You must pay your homeowners insurance and property taxes.
• You must attend a consumer counselling session by a counsellor approved by the HUD.
• Your home must be maintained in good condition.
• The property has to be a single-family home, multi-unit house with up to 4 units, a townhouse, a Condo or a manufactured house that has been built since June 1976.
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Reverse mortgage expert in Maryland
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