Reverse mortgages have become very popular in the UK today. These mortgages are of a special type that are designed to help a homeowner to convert their home equity into ready cash, boosting up the financial security they have, by enabling them to meet any unexpected medical expenses, or making home improvements, etc.
Homeowners are required to be around 52 or older and should already be settled into a mortgage of their own, that has little remaining as far as balance goes. In this situation, people who are eligible can take on a ‘reverse’ mortgage by going through HUD.
Homeowners are then able to get a lump sum payment, or take monthly payments over a fixed period, or for as long as they’re living in the home. This type of mortgage can change with the homeowners’ circumstances. This is very much unlike other HUD mortgages. A reverse mortgage does not require any repayments for as long as they’re living there. The lender gets to recover their principal plus interest whenever the home is sold, and the balance is paid to the homeowner or survivors. Should the amount be insufficient for repaying the loan, then HUD takes responsibility to pay however much is short to the lender. The FHA is responsible for collecting insurance premiums from borrowers in exchange for providing coverage.
For someone to get one of these home mortgages from HUD, they don’t even need to show proof of income or present any assets. There’s no limitation for home value when qualifying under HUD’s reverse mortgages. Homeowners are charged 2% of their home value up-front as fees, plus another 1/2% of the total loan balance each year. This amount can be paid usually by the lender, and then further charged within the principal amount that was borrowed. These mortgages have enabled seniors to take their home equity and live a life free of the stress of making mortgage payments during their retirement years.
The amount of a reverse mortgage is decided on interest rates, age of borrower, and home value. This type of a mortgage will give a greater amount the older the borrower is. Let’s say that today we have an interest rate of 9%. Then a person who is 65 will be able to borrow at 26% of the home value, and a person age 75 can get 39% of the home value, with a person of 85 getting 56% of the home value.