Looking for a way to unsaddle yourself from mortgage payments? If you are a homeowner 62-years of age or older, you may be able to qualify for a reverse mortgage, even if you have an existing mortgage on your home. Reverse mortgage loans, formally called home equity conversion mortgages, are based on the equity that is in your home and can be used to pay off existing mortgages to relieve homeowners of a monthly mortgage payment. For many older homeowners, this allows them to enter their retirement years without a mortgage payment, leaving them more money each month to use as they see fit.
How a Reverse Mortgage can Pay off an existing Mortgage Loan
Unlike traditional mortgages, reverse mortgage lenders do not require payment of the loan until the homeowner sells the home, moves or passes away. While there still are fees and market interest rates applied to the loan, the loan will never exceed the value of the home when it sells. For those with a conventional mortgage on their home, a reverse mortgage can pay off that debt and give peace of mind that they will be able to own and live in their home as long as they desire.
According to an 2012 AARP Public Policy Institute analysis of income of Americans 65-years or older, the average annual income for this group was only $31, 742. With only a little more than $2,600 a month average to live on, a mortgage payment can take a large bite out of that income. With a reverse mortgage, the balance of the existing mortgage can be paid off, leaving the homeowner free of a monthly payment. Some of the possible benefits of using a reverse mortgage this way include:
– Allows homeowners to keep their homes
– Without mortgage payments, many can fully retire
– Access to money needed for medical care
– More money for vacations and leisure activities
Reverse Mortgage Loan Payout
If a homeowner still has an existing mortgage, in most cases the reverse mortgage lender will require them to pay off the existing mortgage out of the proceeds of the reverse mortgage loan. However, after the mortgage is paid off, any additional funds can be used for whatever they prefer. For example, if the homeowner owes $50,000 on their home, yet they qualify for a $150,000 reverse mortgage loan, they can pay off the $50,000 mortgage and have $100,000 left to use. This can be distributed in a lump sum, in monthly payments or even a combination of both; all with no need to make monthly payments to repay the loan. The interest rate on the reverse mortgage will be comparable to a traditional mortgage loan’s interest rate.
The biggest benefit for many older homeowners that use a reverse mortgage to pay off their existing debt is peace of mind. Knowing that there are no more monthly payments due can relieve stress for those who need to live off a lower annual income. It can also give them access to extra cash from the proceeds, making retirement just a little sweeter.