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What is a Reverse Mortgage?

How much equity do you have in your home? If you are over 62, own your own home, and have either paid it off or have a lot of equity in it, you could qualify for a reverse mortgage.

So, what is a reverse mortgage? Done right, a reverse mortgage loan is a way for senior citizens to use the equity in their homes to provide additional income — without adding to monthly bills. After determining the amount of money needed, the homeowner can withdraw the funds all at once or receive monthly payments, depending on what works best.

Most reverse mortgages are home equity conversion mortgages, a program of the Federal Housing Administration. HECM loans are backed by the federal government.

Here’s how a reverse mortgage works. Homeowners must be 62 or older and have either a lot of equity in or have paid off their homes. In retirement communities such as Burnet, Marble Falls, Llano, Kingsland, Horseshoe Bay, and across the Highland Lakes, reverse mortgages are popular ways to supplement retirement income.

First conceived as a way for retirees to cover monthly living expenses and health care costs, reverse mortgages do not limit how the money can be used. You can buy a car, fix your roof, go on vacation, all as long as you stay current on your property taxes, home insurance, and any applicable homeowner association fees.

As long as you live in the home, you will not have to make any payments on the loan balance. What you borrowed and the interest on it will be repaid to the lender whenever the house sells.

You will never lose ownership of your home because of a reverse mortgage. The amount owed on the home can never exceed the value of the home. If the house sells below the amount owed on the property, the borrower or borrower’s family will not owe the difference. If the house sells for over the amount owed, the family keeps that difference.

How much you can borrow against your home depends on your age and how much equity you have. The older you are, the more you are eligible to withdraw. Loans must also follow the 60 percent rule: You can only access up to 60 percent of the available loan during the first 12 months. In month 13, you can take the rest, if you want. (Exceptions do exist for this rule.)

Both fixed and variable interests are available for a reverse mortgage and are tied to the current index plus 1-3 percentage points. The interest compounds over the life of the loan and is not repaid until the entire amount is repaid when the property sells.

To find out if a reverse mortgage is right for you, talk to your bank, a mortgage banker, or broker in the Highland Lakes. The experts in Marble Falls, Burnet, Llano, Horseshoe Bay, and Kingsland are where to go to have reverse mortgages explained.


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