Understanding Reverse Mortgages

reverse mortgageThe cost of a typical single-family home in the United States has skyrocketed. But here’s the challenge for many people: How can you access the value locked in your home? Have you ever heard about reverse mortgages?

One option is to sell your house and move elsewhere, but that’s not always an easy decision. If you’ve paid off a significant portion of your mortgage or have no mortgage left, a reverse mortgage might be a solution worth considering. However, it’s crucial to explore this option thoroughly before making a decision.

Your Home as a Financial Resource

A reverse mortgage is a loan that’s based on the current value, or equity, of your home, which you’ve already paid for. Unlike a regular mortgage, with a Myrtle Beach reverse mortgage, the lender pays you instead—through monthly payments, a flexible line of credit, or a lump sum. The best part? You don’t need to repay the loan until you sell your house, move out, or pass away.

When the time comes to settle the loan, the outstanding balance is deducted from the proceeds of the home’s sale, and any remaining money goes to you or your heirs.

The home equity conversion mortgage is a common type of reverse mortgage. HECM is insured by the Federal Housing Administration (FHA). It is a part of the U.S. Department of Housing and Urban Development (HUD). You may also find reverse mortgage options offered by state or local governments or private lenders.

FHA insurance ensures that if the loan balance exceeds the sale price of the home, your heirs won’t have to pay more than 95 percent of the appraised value. Mortgage insurance covers the remaining balance.

Key Considerations for Reverse Mortgages

Types of Housing: You can obtain an HECM for a single-family home, a two- to four-unit dwelling where you own one unit, HUD-approved mobile homes and condominiums with a permanent foundation made after June 1976.

Eligibility: To qualify for a reverse mortgage, you must be at least 62 years old and live in the home as your primary residence. You cannot have any outstanding federal debts, and you must participate in an educational session with an HUD-approved HECM counselor.

Loan Limit: HUD sets an annual cap on HECM borrowing, which was $970,800 in 2022.

It’s important to note that reverse mortgages come with costs. Interest rates can be relatively high, especially with recent increases by the Federal Reserve. On average, fixed-rate reverse mortgages in November 2022 had an interest rate of around 7 percent, similar to traditional mortgages. This interest accumulates over time, meaning the more you borrow initially and the longer you have the loan, the more interest you’ll pay.

reverse mortgageAdditionally, you’ll incur fees for HUD mortgage insurance, closing costs, loan origination (capped at $6,000), and loan servicing. You’ll also need to cover home insurance, property taxes, and potential homeowners association fees. Some lenders may set aside a portion of the loan proceeds to address these expenses. Regular home maintenance is essential to prevent minor issues from becoming major problems that could reduce your property’s value.

Many homeowners view reverse mortgages skeptically, considering them a last resort. However, financial experts like David Stacy Reverse Mortgage Specialist believe they can be a valuable financial tool.

One reason for the hesitation stems from past rules that allowed a lender to sell the home out from under a surviving spouse who wasn’t on the loan when the borrower passed away.

HUD changed these rules in 2017, now allowing the surviving spouse to stay in the home, even without their name on the loan, as long as they continue to pay property taxes and insurance and forgo further borrowing through the reverse mortgage.

A Potential Financial Bridge

Many individuals have more wealth tied up in home equity than in their retirement savings. Unlike 401(k) accounts, income from a reverse mortgage is tax-free. Some people use a reverse mortgage as a temporary bridge to delay taking Social Security payments or to cover unexpected expenses, particularly if their mortgage is paid off.

Seek Professional Guidance For Reverse Mortgages

Before considering a reverse mortgage, it’s crucial to seek advice from a certified HUD-approved counselor. They can help you understand if it’s the right option for your situation. If you live in a condominium, ensure it has HUD approval for reverse mortgages. Also, make sure to work with an FHA-approved lender, as only they can issue federally insured reverse mortgages.

Reverse mortgages in Mytle Beach can be complex, and there are scammers who target older homeowners, so it’s essential to have someone outline all the associated costs and ensure you’re dealing with reputable lenders.

Remember, while you might rely on Social Security, pensions, and retirement savings during your retirement, your home could be your most significant asset. Don’t overlook its potential as a financial resource.

Ready to explore your options? Seek expert guidance and make informed choices for your financial future. Call David Stacy Reverse Mortgage Specialist.

David Stacy Reverse Mortgage Specialist
Myrtle Beach, SC 29577
(843) 491-1436

We serve all of Horry County including: North Myrtle Beach, Carolina Forest, Socastee, Forestbrook, Conway, Surfside Beach, Little River, Myrtle Beach, Forestbrook