Transitioning Your Mortgage to Reverse Mortgage
A Home Equity Conversion Mortgage (HECM) offers an avenue to borrow a portion of your home’s value and defer repayment of the loan as long as the property remains your primary residence. It’s a flexible option for homeowners who own their home free and clear.
Under certain circumstances, it can also be worth pursuing if you are still paying off your current mortgage. Before determining if this is the case for you, you’ll need to have a clear understanding of the ways you might make the jump from mortgage to reverse mortgage.
First, it’s critical to know who is eligible for a HECM. Borrowers must be age 62 and up and will need to keep the home insured and its property taxes paid. As mentioned, the house will also need to be used as a primary residence for the duration of the loan and maintained in good condition.
Additionally, the portion of equity that can be accessed increases with age. An 82-year-old homeowner will be able to draw a larger amount of money via a reverse mortgage than a 62-year-old with the same amount of equity.
Payoff Before Payout
Since a HECM is based on home equity, an existing mortgage will reduce the amount of cash available to you. One of the requirements of a reverse mortgage is that it is the first lien on a property, so your current mortgage will need to be paid off before you can enjoy the benefits of a HECM.
One way to accomplish this is to use the proceeds from a reverse mortgage to pay the current balance, leaving any remaining funds to be distributed directly to you. Of course, this requires your equity to exceed your current mortgage payoff. While a slight difference between the two may not make the HECM worthwhile, equity that far exceeds a remaining mortgage balance may be viable. You could also choose to fund the payoff from another source before moving ahead with a reverse mortgage.
HECM for Purchase
Another possible strategy exists thanks to a specific type of reverse mortgage. A HECM for Purchase combines the closing of a home purchase with a reverse mortgage to realize savings for the buyer.
Homeowners looking to downsize or relocate may find that selling their current home results in the ability to repay their mortgage and cover the entire cost of a more affordable home. Assuming they meet the other requirements, having the cash to purchase the new house would make the full potential of a HECM for Purchase available to them.
Learn more about the ways that Home Equity Conversion Mortgage can support your retirement goals on our website. Or call to speak with a knowledgeable loan specialist who can help you explore your mortgage options.
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment