Equity Release Can Line Your Pockets in Your Golden Years

Looking to make much needed home improvements or need some money for an emergency? A reverse mortgage is a clear solution to unlocking extra economic freedom during retirement years. Whether we call it equity release, a reverse mortgage, equity conversion, or a line of credit, all refer to the same way to access credit from your own household.

The Home Equity Conversion Mortgage (HECM) program for equity release enables certain qualified homeowners to withdraw some of the equity in their home. Equity is anything with monetary value: claims, mortgages, liens, etc. Also known as a reverse mortgage, this special type of home loan is provided by the Federal Housing Administration (FHA) and to qualify you must meet the FHA guidelines. Equity that has built up over the years of mortgage payments can be paid to you with a line of credit. However, unlike a traditional home equity loan (a.k.a. second mortgage), no repayment is required until the borrower no longer resides in the home as a primary residence or fails to meet the obligations necessary for the mortgage.

This type of home equity release includes specific requirements. In many ways, reverse mortgage requirements are different from, say, FHA 203K loan requirements. The central requirement for a line of credit is that homeowners must be over the age of 62. They also must own their home outright or have a low mortgage balance that can be paid off at closing with proceeds from the equity release. In addition, homeowners can only have one reverse mortgage at any given time. Finally, the home in consideration must be the principal residence.

Your friendly mortgage specialists here at MCity Mortgage would love to see if you qualify for equity release by going over a complete list of FHA requirements or by answering the question: How much can I borrow? We're here to tell you or someone you love how to get an FHA Loan.

A Line of Credit That Puts the Zen Back into Senior Citizen

Make sure you look at FHA vs. conventional loan options if you're interested in refinancing, because there are many differences between the two. The HECM is a safe plan that can give older Americans greater financial security. Don't worry if you didn't originally buy your house with an FHA-insured mortgage, because your new line of credit will be FHA-insured!

Once a borrower qualifies for the equity release, there are several options for receiving payments:

  1. Tenure: Equal monthly payments
  2. Modified Tenure: Combination of line of credit with monthly payments
  3. Term: Equal monthly payments for a fixed period of months selected by the borrower
  4. Modified Term: Combination of line of credit plus monthly payments for a fixed period of months selected by the borrower
  5. Line of Credit: Unscheduled payments or installments at times and in amounts of borrower's choosing until the line of credit is exhausted

How Can I Use the Equity Release I Receive? 

Many seniors use it to:

  • Supplement social security
  • Meet unexpected medical expenses
  • Make home improvements
  • Supplement income or pay for monthly expenses
  • Pay off a current mortgage and/or other debts

FHA requirements state that payments on a line of credit are deferred until the owner dies, the home is sold, the owner leaves, or the owner is out of the home for more than 364 consecutive days. When the homeowner permanently leaves the home, the reverse mortgage is due and payable. You or your heirs will have the option to sell or refinance the home and keep 100% of any remaining equity! 

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