Nov 16, 2023

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Considering Reverse Mortgages? Know This Before You Start

A reverse mortgage is a financial product designed for homeowners, typically seniors aged 62 or older, that allows them to convert a portion of their home equity into cash without having to sell their home or make monthly mortgage payments. Restate Homes can be a better product for some people, but first let's take a look at reverse mortgages together.

How Reverse Mortgages Work:

1. Eligibility:

- To qualify for a reverse mortgage, you typically need to be at least 62 years old.

- Most reverse mortgages require you to have at least 50% equity in your home.

- Your home must be your primary residence, and you must continue to pay property taxes and homeowners insurance.

2. Types of Reverse Mortgages:

- Home Equity Conversion Mortgages (HECMs) represent the majority of reverse mortgages. The loan limits for HECMs are $822,375 in 2021.

- Proprietary reverse mortgages may have higher loan limits based on your home's appraised value.

- Single-purpose reverse mortgages are typically designed for specific purposes, such as home repairs or property taxes.

3. Loan Amount:

- The loan amount you can access depends on your age, the appraised value of your home, and current interest rates.

- On average, HECMs may allow access to approximately 50% to 70% of your home's appraised value.

4. Payment Options:

- With a reverse mortgage, you can choose how you receive funds:

- Lump Sum: You could receive a lump-sum payment for immediate needs.

- Line of Credit: A line of credit may allow you to access funds as needed, with the average limit for a HECM being $90,000.

- Monthly Payments: You can opt for regular monthly disbursements, which vary based on the loan amount.

- Combination: Some borrowers choose a combination of these options.

5. No Monthly Payments:

- One of the central features of a reverse mortgage is that you are not required to make monthly mortgage payments. Instead, the loan balance accumulates over time.

6. Interest Accrual:

- While you don't make monthly payments, interest accrues on the loan balance. On average, HECM interest rates can range from 2.5% to 5.5%.

7. Repayment:

- Repayment typically becomes due when one of the following events occurs:

- The homeowner sells the home.

- The homeowner moves out of the home, for example, into a long-term care facility or passes away.

- The homeowner fails to meet the obligations of the loan, such as maintaining the property or paying property taxes and insurance.

8. Remaining Equity:

- After the loan is repaid, any remaining equity belongs to the homeowner or their heirs.

9. Protections:

- HECM reverse mortgages have safeguards, such as a lending limit of $822,375 in 2021. You're also required to receive HUD-approved counseling to ensure you understand the terms and obligations of the loan.

10. Costs and Fees:

- Reverse mortgages come with various fees, including origination fees, servicing fees, and mortgage insurance premiums. On average, these fees can amount to around 2% to 5% of the loan amount.

11. Impact on Heirs:

- The repayment of the loan can affect the inheritance you leave to your heirs, as the home's equity is used to pay off the reverse mortgage debt.

Please note that the specific terms and numbers can vary depending on factors such as your age, home value, and current interest rates, and they are subject to change. It's important to consult with a lender or financial advisor for personalized information and to understand how a reverse mortgage would work in your particular situation.

Restate Homes vs. Reverse Mortgage:

Restate Homes:

1. Payment Structure: Restate Homes provides homeowners with disbursements in monthly installments, allowing for consistent and predictable income, making it easier to budget and plan for expenses.

2. Ownership: Homeowners maintain ownership of their property while accessing the equity. Restate Homes offers a way to tap into home equity without giving up ownership.

3. Interest: Restate Homes does not involve interest payments or accrual. You're essentially sharing a portion of your property's future appreciation with the investor.

4. Repayment: Repayment occurs when the homeowner sells the property or chooses to end the Restate Homes agreement, typically at the property's market value at that time.

5. Eligibility: Restate Homes may have less stringent eligibility requirements compared to reverse mortgages, making it more accessible to a broader range of homeowners. You can have as little 20% or more home equity to qualify, as opposed to 50% for reverse mortgages.

6. Flexibility: Restate Homes offers flexibility in terms of how you use the monthly disbursements, making it a versatile option for covering various financial needs.

7. Shared Appreciation: Homeowners agree to share a portion of the property's future appreciation with the investor. The exact terms of this sharing can vary.

Reverse Mortgage:

1. Payment Structure: Reverse mortgages provide homeowners with disbursements as a lump sum, a line of credit, or monthly installments. The lump sum and line of credit options can offer flexibility, but monthly installments provide regular income.

2. Ownership: With a reverse mortgage, homeowners retain ownership of their property, similar to Restate Homes.

3. Interest: Reverse mortgages accrue interest over time, and the accumulated interest is added to the loan balance. This can result in a growing debt over time.

4. Repayment: Repayment typically occurs when the homeowner sells the property, moves out of the home, or passes away. The loan balance, including accrued interest, must be repaid, often from the sale of the property.

5. Eligibility: Reverse mortgages are generally available to homeowners aged 62 or older and may have certain eligibility requirements, such as home value and existing mortgage balance.

6. Fees: Reverse mortgages often come with various fees, including origination fees, servicing fees, and mortgage insurance premiums, which can affect the overall cost.

7. Loan Limits: Reverse mortgages have maximum loan limits determined by factors like home value and location.

In summary, Restate Homes and reverse mortgages both offer a way for homeowners to access their home equity without having to make monthly mortgage payments and while retaining ownership of their property.

Restate Homes provides monthly disbursements without interest, offering a predictable and flexible source of income. Reverse mortgages, on the other hand, may offer various payment options but accrue interest on the loan balance, potentially leading to a larger debt over time.

Consulting with financial professionals is advisable when making this decision.


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