Coldwell Banker Residential Brokerage
Diana Gould, GRI, Coldwell Banker Residential Brokerage
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What is a Reverse Mortgage?

by Diana Gould, GRI 09/13/2020

Photo by Alexander Mils from Pexels

If your wealth is tied up in your home, how can you free up some cash? A reverse mortgage is available to homeowners with mostly or fully paid-off mortgages. The monthly payments, which come from the lender to you, are not counted as taxable income. But there are mortgage taxes, and interest rates on reverse mortgages are somewhat higher than the current rate for a normal mortgage.

The FHA's Ever-Popular Reverse Mortgage Offering

Are you 62+? Consider the home equity conversion mortgage, available through the FHA. An approved counselor will lay out the process and point you to a qualifying lender. 

Then, here's what you should expect:

  • There are initial and annual fees, as well as recording fees.
  • Expect credit checks.
  • And yes, you do need an appraisal, inspection and a title search. 
  • In contrast to the usual custom with a regular mortgage, as the AARP points out, you'll probably have to pay the home insurance and local property taxes yourself.

The more you borrow, and the longer the term of your loan, the heftier cumulative interest charges you'll pay.

The Other Ways to Get to Your Home Equity 

Of course, you might sell and downsize. Not ready for that move? Think about...

Cash-Out Refinancing

If your credit score is 640 or above and you have a mortgage, consider cash-out refinancing with the FHA. This replaces your present mortgage with a larger one. The larger loan pays off your mortgage, replaces it and gives you the extra funds in a lump sum. You can be younger than 62. 

The Private Reverse Mortgage

Put up your home as collateral and enter a loan agreement with a close friend or relative. It's not altogether "private" — private reverse mortgages have a standard interest rate, governed by the IRS — but the rate is lower than a bank's.  

The HELOC 

A home equity line of credit (HELOC) empowers you to tap into your home equity. It's something like a credit card: there's a set credit limit. You only need to pay interest on what you withdraw. Note that HELOCs do not come with fixed interest rates.   

The Home Equity Loan

An alternative to the reverse mortgage that can work when you need cash upfront is the home equity loan. You'll pay interest on the lump-sum amount.

Best of Luck (and Patience)!

If there's one thing you must have before applying for a reverse mortgage, it's patience. A reverse mortgage, like a conventional mortgage, involves a full approval process, including those pesky calls and queries about proof of your capacity to repay the loan.

But the result can make it all worthwhile. 

About the Author
Author

Diana Gould, GRI

Diana Gould is truly dedicated to providing exceptional, professional and comprehensive real estate services to her valued clients. She is very astute and highly skilled in the Acquisition and Marketing of Residential and Distinctive Luxury Properties. From Greenwich to Trumbull, Diana’s intimate knowledge of the distinctive communities of Lower Fairfield County is invaluable. In helping her clients to find their dream home or sell their special residence; Diana clearly distinguishes herself with proven results as she brings her client’s real estate dreams to life! As a Global Luxury Specialist, Diana excels at providing insightful, comprehensive guidance and marketing applications that produce results. Due to her extensive background as an CPA, she takes great care to educate and advise their clients with valuable analytical information and an informed and in-depth understanding of the current real estate market. When working with sellers, she implements effective and resourceful marketing strategies that clearly accentuate each property’s specific features. Skillfully taking every measure to position the seller’s property to stand out in the market place, she designs a beautiful presentation that incorporates professional photography, refined staging services and extensive visibility on multiple internet sites. Regardless of the time and effort it takes, when working with buyers, she works tirelessly to identify key opportunities that meet their lifestyle requirements. In serving her clients just newly relocating to the area, she is extremely diligent in seeing that their needs are thoroughly attended to and provides them with an insightful perspective into each community within the region. Diana’s clients trust in her integrity and insight and value her timely guidance and expertise in addressing all aspects of the transaction with professional competence. She is very thorough in providing constant communication about each important detail of the transaction and is always extremely attentive, accessible and responds promptly to her clients. Her attention to detail, consistent follow through and determination to indulge her clients with first class service sets her apart. She always strives to negotiate the best terms for her clients and when met with a tough challenge she is very creative, strategic and skillful in working through the issues. Diana ultimately ensures that each client receives outstanding counsel and exceptional representation in her efforts to accomplish their personal real estate goals. Diana further distinguishes herself with the following designations: Graduate Realtor Institute (GRI) and Certified Relocation Specialist (CRS) and Smart Home Certified.