The target of the U.S. Government was to help senior citizens by arranging them a source of an extra cash monthly income without paying the monthly payments and without showing the income or credit scores. The source of the money is the home equity, i.e. this loan type uses the once paid equity and turns a part of it into cash money. The only guarantee of the loan is the home and the obligatory mortgage insurance. This income is tax free. That is basically how does reverse mortgage work.
1. The Meaning Of The Federal Government Insurance.
The HECM reverse mortgage is the only reverse loan, which is insured by the U.S.Federal Government. This loan is available through FHA approved lenders. A borrower can get an extra protection, because in all cases his money is protected and his other assets will never be used to pay the reverse loan. That is how does reverse mortgage work.
2. How A Senior Will Be Paid?
Because the reverse loan is planned to give the financial help for seniors, his financial needs will determine, how the program will pay to him. It sounds funny, but honestly the lender will pay to a senior. The alternatives are one lump sum, the monthly payments, a credit line or the combination of some or all of these. The monthly payments are usually tax free, because a senior has already paid the taxes once, when he earned the money to pay the usual mortgage.
3. Can A Senior Buy A New Home?
A senior can buy a new home with the HECM Reverse Mortgage, if he is able to pay the difference between the HECM Reverse Mortgage proceeds and the sales price and the closing expenses of the new property.
4. How The Counselor Can Help?
The counselor meeting is compulsory but also extremely useful. The counselors do not sell anything and they have no interest to recommend the reverse loan. Their only job is to help seniors to solve their financial needs in the best possible way and they will often recommend some other solution than the reverse loan. A senior makes it wise, if he will prepare himself well for the meeting by creating the question list.
5. How Much Can A Senior Get?
The law says, that the maximum amount is $ 625.000. Because the loan will be taken against the home equity, the higher the appraised value of the home, the more a senior will get. The older a senior is, the more he can get and the lower the interest rate, the more he can get.
It is wise to plan this action carefully, because there is a temptation to take as much as possible, because there are no monthly back payments. However, the loan will eat the home equity and the more it eats, the less is left when the loan will be closed. It is clear, that this loan is meant for the serious purposes, not for the expensive cruises.