An Introduction To Reverse Mortgages In State College

Reverse mortgages are becoming a more common choice for homeowners 62 and older. By borrowing against the equity in their home, borrowers of a reverse mortgage can benefit from the cash value of their homes. There is no responsibility to repay the loan until the homeowner moves out, sells the home, or dies. 

Many seniors turn to reverse mortgages to enhance their retirement income and financial stability. Depending on their needs, seniors can use a reverse mortgage to obtain a lump sum payment, a line of credit, or monthly payments. You may learn more about reverse mortgages by reading frequently asked questions (FAQs). 
 

Are Reverse Mortgages Good for Senior Citizens?  

For some seniors, a reverse mortgage can be a great financial tool. It can provide additional income, supplement retirement savings, and help seniors stay home. Reverse mortgages can help seniors pay off their debts and medical expenses. However, weighing the pros and cons of a reverse mortgage is important before deciding if it is right for you. 

Shane Whitteker is the owner and chief broker at State College mortgage broker Principle Home Mortgage. He says whether a reverse mortgage can benefit you really depends on your unique situation.

“Depending on the person’s specific situation this may be a good option for senior citizens,” Whitteker says. “You must be at least 62 years old to qualify for a reverse mortgage also referenced as Home Equity Conversion Mortgages (HECM).  Basically, the HECM can be used to provide funds during retirement years while still allowing the owners that are listed on the HECM to live in the home without a mortgage payment.” 

How Much Can a 70-Year-Old Borrow On a Reverse Mortgage?  

Age, reverse mortgage type, valuation of the home, and current interest rate are just a few of the variables that affect how much a 70-year-old can borrow on a reverse mortgage. The borrower can typically borrow more money the older they are.  

The amount that can be borrowed is also regulated by the property's equity, with most lenders providing up to 60% of the home's worth in cash. In addition, the present interest rate affects the amount that can be borrowed. Consumers should evaluate the current interest rate while selecting how much money to borrow because reverse mortgages are long-term loans. 
 

Is There an Age Limit for Reverse Mortgages? 
 
No, there is not an age limit for reverse mortgages. Generally, homeowners must be 62 to qualify for a reverse mortgage. Some lenders may require that all borrowers be at least 65 years old. Additionally, the youngest borrower will dictate the qualification for the reverse mortgage and set the terms.  It is possible to set up a reverse mortgage without basing the terms off of the age for the youngest homeowner.  I that case, the youngest homeowner would be on the deed but would not be protected by the HECM.  This can be a significant risk to the younger homeowner. 

Are There Different Types of Reverse Mortgages? What Are They?  

According to Whitteker, there are several types of reverse mortgages for borrowers to choose from. 

“The HECM mortgage is protected and regulated by HUD, where HUD collects fees from the HECM in order to provide protective insurance to investors and lenders,” Whitteker explains. 

Whitteker notes that while the HECM has a few choices, borrowers typically select one for its flexibility. 

“The HECM has 3 basic options, Whitteker says. “A yearly adjustable rate vs a monthly adjustable rate, and a fixed rate option. The HECM is set up so that you as the borrower only receive 60% of your funds approximately at funding. The remainder is available after 12 months on the 2 adjustable rate options. On the fixed rate option, the only money available is the first distribution. This fact makes the fixed option an unusable option for most potential HECM borrowers.” 

The Home Equity Conversion Mortgage (HECM), Single-Purpose Reverse Mortgage, and Proprietary Reverse Mortgage are three types of reverse mortgages. Each reverse mortgage offers its own set of features and perks. 

The most common type of reverse mortgage backed by the US Department of Housing and Urban Development (HUD) is the Home Equity Conversion Mortgage (HECM). This form of a reverse mortgage can be used for anything, including supplemental retirement income, medical costs, and house maintenance. 

Some state and local government agencies, as well as nonprofit organizations, provide Single-Purpose Reverse Mortgages. This loan can only be used for one purpose, such as house repairs or paying property taxes. 

The Proprietary Reverse Mortgage is offered by some private lenders and allows homeowners to access more of their home's equity than with a HECM loan. This type of loan usually has higher upfront costs and interest rates. 
 

Is There an Independent Counselor I Could Speak With About Reverse Mortgages?  

Yes, there are independent counselors available to help you understand reverse mortgages. The US Department of Housing and Urban Development (HUD) requires all borrowers to participate in counseling before taking out a reverse mortgage. HUD-approved counselors are available to answer any questions and provide unbiased advice. 
 

What Type of Person Benefits the Most from a Reverse Mortgage?  

Retirees are often the best candidates for a reverse mortgage. Reverse mortgages can provide financial security during retirement by providing extra income and allowing retirees to access their home's equity. Reverse mortgages can help retirees pay off their other debts or medical expenses.  
 

What Percentage of My Home's Value Can I Get With a Reverse Mortgage?  

One of the main determinants of how much you can borrow through a reverse mortgage is the value of your home. Additionally, the more valuable your home is, the more money you can access. 

Whitteker recommends discussing your unique situation with your local mortgage broker. 

“The answer to this question comes down to a number of factors,” Whitteker says. “It is best to inquire with a mortgage professional to receive a quote.” 

How Much Money Can You Get From a Reverse Mortgage?  

The amount of money you could get from a reverse mortgage relies on several things, such as the reverse mortgage type, the homeowner's age, the value of the home, and the current interest rate. Borrowers can often take out larger loans as they age. 

The amount that can be borrowed depends on the equity in the home; normally, lenders will give up to 60% of the home's worth in cash. The current interest rate also influences the maximum loanable amount. People should examine the current interest rate when selecting how much money to borrow because reverse mortgages are long-term loans. 

Whitteker notes that the maximum amount changes annually. 

“$1,089,300 is the current maximum lending limit in 2023, but this limit changes per year,” Whitteker says. “The property value and your age will set your principle lending limit.  So there are maximums set each year but your personal scenario is based on age and property value but may be impacted by the maximum allowable loan limit if your home is worth more than the maximum allowable loan limit.” 
 

Who Owns the House in a Reverse Mortgage?  

The homeowner still owns the house in a reverse mortgage. The lender is prohibited from possessing the property whether or not the debt is repaid. The lender's lien on the property will not be released before the complete repayment of the loan. The homeowner is also responsible for maintaining the residence and paying taxes, insurance, and other expenses. The lender might also have requirements, such as maintaining the property in good shape.  
 

When Will I Have to Repay a Reverse Mortgage?  

According to Whitteker, reverse mortgage does not need to be paid back until the homeowner dies, sells the home, or moves out. At that time, the loan must be paid off in full. If the loan is not paid off in full, the lender can take possession of the property and sell it to recover the remaining loan amount. 

“You never actually have to repay the reverse mortgage (HECM) as long as you live in the property and maintain the real estate taxes and property insurance,” Whitteker explains. “If you choose to sell the home you will be required to pay the reverse mortgage (HECM) balance and will receive the difference as your proceeds from the sale.”
 

Do You Get All the Money at Once With a Reverse Mortgage?  

You do not get all the money simultaneously with a reverse mortgage. Depending on the type of loan, you can receive a lump sum payment, a line of credit, or monthly payments. 
 

Is a Reverse Mortgage Right For You? 

Reverse mortgages can be a fantastic financial tool for seniors, but before signing any paperwork, it is crucial to understand the loan's terms and circumstances. If you're considering a reverse mortgage, speak with Shane at Principle Home Mortgage in State College to learn more about your options.