Reverse annuity mortgages (RAM) were created to allow older Americans to tap into the equity of their paid for or nearly paid for home. Homeowners receive a tax-free payment each month, and the mortgage is paid when the home is sold. Before you choose a RAM, make sure you have evaluated the risks since this option can limit future housing plans.
Types Of Reverse Mortgages
One of the first RAM programs was developed by HUD and is still in existence. To qualify you must be 62 or older, live in the home, and have paid off your mortgage. The government will then insure your mortgage.
You can also work directly with private lenders. You will want to review their terms carefully to be sure that you are getting the full value of your home and not paying thousands in fees.
With both types of RAM you will never owe more than what your home is worth. When you decide to move, the loan’s principal, interest, and fees will be due. Any equity remaining from the sale of your home will be yours or can be based onto heirs.
Difference Between A Reverse Mortgage and A Home Equity Loan
The major difference between a RAM and a home equity loan is when the loan balance is due. With a RAM, the mortgage balance is due when you stop living in the residence. You don’t have the monthly payments of an equity loan. With a RAM it is easier to qualify for the mortgage since you don’t have to have income to make monthly payments.
There are several payout options that you can choose from. A tenure policy provides equal monthly payments as long as the borrower lives on the property. A term policy gives equal monthly payments for a fixed period of months. With a line of credit the borrower to withdrawal funds when needed. A modified tenure combines a line of credit with life long monthly payments. And finally, a modified term provides a line of credit with fixed monthly payments.
Beware Of Scams
There are several scams related to reverse mortgages that you should be aware of. You should not pay thousands for information about a RAM. This information is available freely through HUD and legitimate mortgage lenders. You should also avoid any terms that require payments before you sell or that sell your house within so many years. To avoid scammers, research terms and rates with several lenders and ask questions.