If you are at least 62 years old and are looking for ways to supplement your retirement income without having to sell your home. Then, reverse mortgages might be the right solution for you. This special type of mortgage provides you with the opportunity to have steady income for the rest of your life, while continuing to live in your house and own its title. In fact, California cities rank among the top cities in the US for the popularity of reverse mortgages.
A reverse mortgage lets you access the equity you own in your home. Contrary to the forward mortgage where you make the payments to the lender in exchange for a bigger ownership part in the house. Just as the name suggests, in a reverse mortgage, the lender makes the payments to you and thus takes a portion of your house’s equity in exchange. The good news is you don’t have to make any monthly payments to the lender for as long as you live in the house and the funds that you receive won’t be counted towards your income tax. However, other homeownership costs like property taxes are still your responsibility.
While a reverse mortgage might seem like the solution to all your problems, there are things to consider before making the final decision and getting yourself in this financial commitment. In this article we will explore the reverse mortgage eligibility criteria and will make an analysis of the advantages and disadvantages that reverse mortgages present for senior homeowners in California.
California Reverse Mortgage Eligibility Criteria
In order to qualify for a reverse mortgage, borrowers in California must meet certain criteria.
- Must be at least 62 years old
- Must live in their home as their primary residence
- Must own the home outright or own a significant portion of its equity
- Must pay the other homeownership costs such as property taxes, maintenance, repairs
- Must attend a counselling session with a HUD representative
Reverse Mortgages – Payment Plans
Reverse mortgages do provide flexibility in the way you choose to receive and manage your funds. With a variety of fixed interest and adjustable interest rate payment plans, reverse mortgages let you pick the option that best suits your financial needs and spending habits. There are 6 plan options:
- Lump Sum – you receive all the money as one lump sum at the beginning
- Fixed Annuity – you receive monthly payments for a fixed number of months
- Tenured Annuity – you receive monthly payments for as long as you live in the house
- Credit Line – you withdraw funds from the reverse mortgage
- Fixed Annuity + Line of Credit
- Tenured Annuity + Line of Credit
Reverse Mortgages: Advantages & Disadvantages
While reverse mortgages present senior homeowners with a variety of benefits like income flexibility during retirement, this unique type of mortgage comes with a lot of costs and obligations as well. If you are thinking about getting a reverse mortgage, a good understanding of its benefits and drawbacks is necessary.
An easy way to access your equity without having to sell your home
- The borrower get to keep the title and can live in the house for as long as he pays other homeownership obligations
- No need to repay the loan unless the borrower dies, moves out or sells the house
- No credit score and income requirements
- Non-borrowing spouses can continue living in the property upon the death of borrower
- Large portion of what you can borrow is spent on interest fees, mortgage insurance premiums, closing costs for buyers, leaving you with less money
- You would probably not be able to pass down the home to your heirs
- You would still be responsible for other homeownership costs such as property tax
- You might use up all the proceeds
How Much Can I Borrow using a Reverse Mortgage?
The amount that a person can borrow through a reverse mortgage depends on a number of factors related to their age, the value of their home, whether they have any existing mortgage or other large debts and your payment plan. Generally, the older you are, the more you can borrow using a reverse mortgage, since the equity of the house would be used for a smaller number of years. The value of the home comes into play when deciding the maximum amount that you can claim from a reverse mortgage. The bigger the value of your house, the more you can borrow. Lastly, if you have any existing mortgage left, the amount outstanding would be paid first and then the rest would be available to you.
In conclusion, even though Reverse Mortgages are a good way to access your home’s equity, it is important to compare between other less expensive options available, or ones that do not force you to give up your property.