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AAG Reverse Mortgage
The first reverse mortgage was made to help a widow stay in her home after her husband died and took his income with him. Reverse mortgages still help people stay in their homes in the current day.

A reverse mortgage is just a loan, and it has changed over the years to become one of the safest mortgage options available today. This financial tool is backed by government insurance, and tens of thousands of seniors have already used it to their advantage.

Learn more about reverse mortgages and how they can help you live a better life by reading on.

As you get closer to your golden years, you may start to think about how you can add to your retired income.  After all, retirement means the end of regular work responsibilities, and one's growing income is often replaced by a fixed income from sources like social security and pensions.  And since as much as half of the net worth of older Americans is tied to their homes, you may be interested in learning more about what a reverse mortgage loan is and how to use it as a tool for financial planning.

What Does the Reverse Mortgage Mean?
A reverse mortgage is what the American Association of Retired Persons (AARP) says it is:

"A loan against your home that you don't have to pay back as long as you live there." 

This is only true if you follow the rules of the loan. For "equity-rich" retirees who want to stay in their homes as they age, a reverse mortgage loan may be a good option that gives them more financial protection.

What are the pros and cons?
A reverse mortgage loan is a popular choice for people over 62 because it has a number of features that make it stand out.

It can help you get some cash from the value of your home.
The Federal Housing Administration (FHA) backs a Home Equity Conversion Mortgage (HECM) reverse mortgage loan.
You can stay in your home as you age and don't have to move.
There is no monthly mortgage payment, but the loan must be paid back when the last borrower leaves the house or doesn't follow the rules of the loan. Borrowers are responsible for home upkeep, property taxes, and homeowner's insurance.
You still own your home, but the lender has a claim on it. This is the same as any other debt.
You can't lose your house as long as you: Pay your property taxes on time.
Keep paying for your home insurance.
Follow all the rules of the loan.
How a reverse mortgage works
Reverse mortgage loans let you turn some of the value of your home into cash that you can use however you want.  Other home equity loans are different from these loans because you usually pay back a standard loan over time with your monthly mortgage payment.  With a reverse mortgage, on the other hand, the loan is paid back all at once when it comes due.  You still own and live in your home, but you don't have to pay a monthly mortgage payment. Borrowers are responsible for home upkeep, property taxes, and homeowner's insurance.

When a maturity event happens, the loan is due and has to be paid back.  These things happen if the last person who still owes money:

  • Sells or gives away the house.
  • Passes away.
  • Doesn't do simple repairs to keep the house in good shape.
  • Doesn't pay taxes, insurance, or other bills for the house.
  • Stops living in the house as their main home or leaving it for more than 12 months in a row.
  • Defaults under loan rules.
If any of these things happen, it is the job of the borrower or the estate to pay back the loan in full.  Most of the time, the home is sold and the money from the sale is used to pay off the loan.  The borrower or their relatives get any money that is left over.  If you or your children want to keep the house after a maturity event, you can pay off the loan with other money or turn it into a regular mortgage.

Disbursement Options
The money from a reverse mortgage loan can be given to the borrower in a number of ways, depending on what they want.  If you choose one type of payment and then decide that another type would be better, you can change it by paying a fee to your servicer.  But to start, renters can choose one of the following ways to get their money:

A big sum
When a borrower chooses a lump sum, the money is given to them at the ending.  In the first year of the loan, there is a limit on how much can be taken out. This is to protect the customer even more.  This means that you can only take out 60% of the capital in the first twelve months.  If other payments, like a mortgage, take up more than 60% of the original limit on the principal, you can take the amount you need plus 10% of the principal.

A credit line
A line of credit is a popular way to get money out.  The line of credit stays open, so you can use it whenever you want.  Only the amount that is used is charged interest.  Borrowers should know, though, that if the line of credit is paid off in full, the account will close and the borrower will have to reapply for a new reverse mortgage loan to get access to the money again.

A payment every month
With this choice, you get your money in a fixed amount every month for the length of the loan or for a certain amount of time.  Most of the time, the monthly payment is based on your age, the value of your house, and the interest rate.  It doesn't change unless you ask for a written change to the payment plan.

Or a mix of any of the choices above
Borrowers can choose a mixture like a monthly payment with a line of credit or a partial lump sum with a monthly payment.

Reverse Mortgage Loan Uses
Borrowers who got money from a reverse mortgage did a lot of different things with it. Aside from a few rules, like not being able to use the money for estate planning companies or certain annuities or insurance products, you could use the loan money for anything you wanted. The most popular ways to use money from a reverse mortgage are:

  • Paying off a debt (this is a requirement of the loan)
  • Getting rid of regular bills
  • Paying for sick bills or care at home
  • Taking care of the house
  • Putting it away in case of situations
For people who already have a mortgage, the reverse mortgage loan will pay off that mortgage first. If this is true for you, it could be one of the best things about the loan. Since housing bills usually take up about 30% of a person's income, getting rid of this cost could make it much easier for you to save money every month and use it in ways that will make your retirement better.

Credit card bills are another cost that can take a chunk of money away from a person's income.  Most of the time, minimum payments are mostly made up of the high interest rates on the card, and the balance is barely touched.  So, it can be hard when these monthly minimum payments keep taking a part of a person's cash every month.  The money from a reverse mortgage can often be used to pay off or lower a credit card balance. This frees up money that can be used for other things.

Financial managers are finding out that reverse mortgage loans can also be used as a planning tool for money.  Borrowers can use the money from the loan and put off taking their social security payments until later, when they will be bigger. You could also use a reverse mortgage line of credit instead of taking money out of your investing accounts. This plan gives money more time to grow. It can also be used when the economy is bad to give assets time to recover.  In both cases, many seniors find that these tactics help them get more out of their retirement funds. Talk to your expert to find out more about these ways to plan for retirement.

Another smart way to use money from a reverse mortgage is to pay for care at home instead of going to a nursing home.  If you're like most older people, you might prefer to grow old at home instead of in a facility. Even if you need a nurse, you can still get a reverse mortgage and get the money you need.

Another important way to use money from a reverse mortgage is to pay for medical bills or costs.  Funds from a reverse mortgage can help you pay for important medical treatments, medicines, or diagnostic tests.  Money from a loan can help you make sure that your health is your top concern and not something you have to give up because of money problems.

Various kinds of reverse mortgages
Even though 90% of all reverse mortgage loans in the United States are government-insured Home Equity Conversion Mortgages (HECM), there are other types that serve different needs.  Among these are the following.

HECM for Purchase: Used when you want to get a reverse mortgage and buy a new home at the same time.

Refinancing a reverse mortgage
Used when you want to refinance a reverse mortgage that you already have.

Reverse mortgage for a single purpose
Use if you only want to pay for one thing with the money from your reverse mortgage. These are smaller loans that cost less on average.

Reverse mortgages for private use
Usually used for homes with a high value.

Reverse Mortgage Loan Safeguards
Many people who are thinking about getting a loan worry about their financial security.  The U.S. Department of Housing and Urban Development (HUD) makes safety a top concern with the HECM reverse mortgage.  HUD protects the loan product and keeps adding customer protections as the market for loans changes.  These safety measures include:

Fees for lenders can't be too high.
The federal government sets a limit on how much you have to pay for the loan's origination.

Reverse Mortgage Counseling: Before they can apply for a loan, all potential buyers are required by HUD to meet with an FHA-approved counseling service that is not affiliated with the loan. The session will give you more information about reverse mortgages and other possible ways to get money.

Evaluation of a borrower's finances
Lenders do a financial assessment to see if you can meet the above loan responsibilities, which reduces the chance that you will not pay back the loan.

FHA Insurance for Reverse Mortgage Loans
You can never owe more on your home than it is worth.  If the amount you owe on the house is more than what the house is worth, FHA insurance will pay the difference to the lender.

Loan Protection Without Repayment
The loan is backed by a lien on the home, but the debt can only be paid back with the home.  This means that all of your other belongings are safe.

No Fees for Early Payment
If you decide to pay off your loan early, you won't have to pay any extra fees.  This is true for both full and partial payments.

Reverse mortgage loans have been shown to be a good way to save money for retirement.  If you know how to use this loan well, it could be a good way to supplement your retirement income.  To find out more about this loan, call 1-888-998-3147 and talk to a licensed reverse mortgage expert.
AAG Reverse Mortgage

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