The cost of living is an issue for many elderly citizens in California today. Many seniors are living on fixed incomes, which can be hard to manage with the rising costs of living. As costs continue to climb, many people choose to take out a reverse mortgage to help cover their bills.
It’s important to mention that reverse mortgages can be a saving grace for people with limited finances as well. While most of the money from a reverse mortgage is used for living expenses or medical bills, there are no restrictions on how the beneficiary chooses to spend their money.
What is a Reverse Mortgage?
Reverse mortgage loans are for homeowners who are 62 years of age or older. To take out a reverse mortgage in California, you must also own your home, or have a small balance left on your current mortgage–which can be paid off with funds from the loan.
A reverse mortgage helps homeowners turn their equity into cash. This home loan can give you a bridge between money you have saved, and the money needed for current medical bills or basic living expenses.
The term ‘reverse mortgage’ derives from the fact that this type of home loan is the opposite of a traditional mortgage that you pay. Instead you get paid for equity that you have built. One of the biggest draws to having a reverse mortgage is that you aren’t required to pay back the home loan until the house has been sold, or you move out.
Now, while you aren’t required to make payments on the loan, there are some stipulations. One is that you must be current on all property taxes, homeowner’s insurance, and any other home maintenance fees required.
In the case that the borrower passes away, the bank will take it’s portion of the payment, and anything leftover will be given to the deceased persons surviving heirs. This is an attractive feature to those that don’t want to leave any mortgage debt to their heirs after they pass. For more information on how reverse mortgages work, visit How the HECM Program Works.
Who Qualifies for a Reverse Mortgage in California?
It’s important to understand the qualifying factors for a reverse mortgage. First, you must be at least 62 years of age. There are not currently any income or credit qualifications to get a reverse mortgage in California, but you must own your home outright. If you have a small balance left on your current mortgage, that is usually okay.
Another qualifying factor is that at least one borrower must reside in the home at the time of applying for, and collecting funds on the reverse mortgage. In addition to this, your qualification for a reverse mortgage home loan may depend on a few factors:
● The appraised value of your home or the HECM payout max–whichever is less.
● The age of the youngest borrower.
● Current interest rates.
● Original sales price of home or initial mortgage insurance premium paid.
Conditions of Reverse Mortgage Repayment
While you are not required to make payments on the principal balance or interest on your
reverse mortgage, if you are residing in the home, you are still responsible for paying annual
property taxes, homeowner’s insurance fees and property maintenance fees. If you fail to pay
your insurance and/or property taxes during the time you are collecting your reverse mortgage
funds, your loan will automatically be categorized as ‘in default’ and you will be immediately
responsible for paying back the loan.
In addition, if homeowners are not diligent about keeping up with their scheduled fees for their home, they may end up facing foreclosure. If you vacate the property at any time, the loan defaults and you must begin repayment immediately; if you are planning to move in the near future, then a reverse mortgage might not be the right option for you.
What Are the Benefits of a Reverse Mortgage in California?
There are a few key benefits of taking out a reverse mortgage over taking a more traditional home loan. Especially for seniors who are in financial trouble. Below are some of the advantages of a reverse mortgage:
● If the borrower passes away during the disbursement of money, or during repayment, the bank will take its portion of the payment, and leave the rest to be given to the surviving heirs of the borrower.
● While debt cannot be passed onto your heirs, they are allowed to inherit the remaining equity in the home.
● There are no monthly mortgage payments required, but you must be current on taxes and home maintenance fees.
● In the past, reverse mortgages were thought of as a last resort. Now with people living decades into their retirement, it’s used as more of a bridge to access equity than a last resort.
This type of loan is best suited for elderly citizens who live on fixed incomes, who are in danger of losing their homes. Additionally, a reverse mortgage can help with the costs of living at a time when the borrower is looking is looking to liquidate their assets. If you are a senior citizen with
home equity, a reverse mortgage might be the right choice for you. For more information on the subject visit the government website for Home Equity Conversion Mortgages for Seniors.