Reverse mortgage lump sum

The principle behind a reverse mortgage is fair enough, it gives you access to funds without having to sell your house or having to take out another loan against your property for which you would then have to make monthly payments. With a reverse mortgage there are no monthly repayments to make.

But be aware that the mortgage lenders would not be offering the mortgage unless there was something in it for them. In this case what happens is, because you do not make any payments, the capital value of the loan increases year on year as the interest you would have paid is added to the amount you borrowed.

Typically that amount is not allowed to exceed the value of your home so in practice once the current value of your home is equal to the loan amount then no further funds will be available and of course if that happened then there would be funds from the house left as part of your estate. That is of course the worse case scenario but there will always be some cost involved when repaying the loan and the house is the security for that loan so the loan company get first dibs.

Repayment of the loan and any other associated charges are made either when the last remaining occupant of the house dies, if you sell your house or if the house ceases to be your primary residence (the latter is usually a requirement to secure a reverse mortgage in the first instance)

Eligibility for a reverse mortgage

• All owners of the house have to agree and be prepared to sign the loan papers
• All of the borrowers entering into the loan agreement must be a minimum of 62 years of age
• Normally owners must be using the house as their primary residence
• Typically the home is a single one unit dwelling, but other types of permanent property will be considered

You are still the owner of your home and are responsible for its upkeep, any taxes and insurance. These will all need to be properly maintained as a condition of the mortgage. You should also be aware that once you are in possession of the funds from the property, whether that is in the form of a lump sum, monthly payment or on a requested cash release basis, this may affect or cause you to loose any benefits you are currently receiving. This aspect of the decision must be carefully examined to ensure that you are not worse off as a result of taking out the mortgage.

Sometime the loans can be secured via ‘public sector’ arrangements, maybe for a property repair or to pay taxes, this is a much cheaper option than taking out a private reverse mortgage in terms of the charges and interest paid, but with the private sector loans you can use the money as you wish. The largest cash advances tend to come from HECM (Home Equity Conversion Mortgages) which are federally insured but funded through the ‘private sector’. However the amount of cash you get is very much dependent on the plan you go with and the associated terms and conditions which can vary widely.

There are a number of different costs involved with initially setting up the mortgage but these costs can normally be added to the loan amount. Don’t forget though that you will be paying interest on the full amount loaned including any added costs. So make sure you ask for and get a detailed breakdown of all costs involved and how much that amounts to so that you know what will be added to the loan.

The calculator below uses the HECM reverse mortgage rates as a basis and will give you the results based on an adjustable rate mortgage (ARM) and a fixed rate mortgage so you can compare the two.

Reverse Mortgage Calculator

Reverse Mortgage Calculator