Unlocking the Value of Your Home: Reverse Mortgages Revealed

If retirement is on the horizon, you may be closely inspecting your financial situation. But did you know that you can use the equity in your home as a financial planning tool? Let’s dive in for a closer look at reverse mortgages.

Understanding Reverse Mortgages

Let’s start by clearing up any confusion around the term “Reverse Mortgage”. A reverse mortgage is classified as a Home Equity Conversion Mortgage or “HECM”¹. To keep it simple, we’ll refer to the Home Equity Conversion Mortgage by the common term of “Reverse Mortgage”.

A reverse mortgage works by giving you access to the equity you have in your home. Instead of making monthly payments, borrowers receive funds from the lender, which can be received as a lump sum, as needed, line of credit, fixed payments, or a combination. Eligible homeowners can enjoy the benefit of no monthly mortgage payments as long as they continue to live in and maintain their home.²   

Homeowners can make payments back to the reverse mortgage if they choose. If payment are made, those funds can be used again in the future. Any remaining unused funds available will grow in value for future use – this is called a growth rate.

Is a reverse mortgage sounding good so far? Let’s explore the qualifications of a reverse mortgage.

What is a Reverse Mortgage Loan?

Reverse Mortgages Eligibility Requirements

To qualify for a reverse mortgage, homeowners must:

• Be at least 62 years old
• Have significant home equity or outright ownership
• Have the home as their primary residence
• Attend HUD counseling
• Complete an FHA financial assessment

Understanding the requirements of a reverse mortgage is crucial for making informed decisions about your finances. Once all of the eligibility requirements are fulfilled, you’re on your way to enjoying the benefits of a reverse mortgage!

What Can I do with a Reverse Mortgage?

Your existing mortgage must be paid off first with the funds available from the Reverse Mortgage. If there are additional funds to access, they can be used in a variety of ways. From taking care of immediate needs or planning for the future, with a reverse mortgage you can:

1. Pay off your existing mortgage³
2. Pay off debt
3. Enhance your monthly cash flow
4. Make eligible home repairs⁴
5. Establish a safety net for unforeseen expenses
6. Enjoy the retirement you have always dreamed of

With a reverse mortgage, the possibilities are endless. Now that you know some of the ways you can utilize your additional funds from a reverse mortgage, let’s look at a few of the myths surrounding them.

Myths about Reverse Mortgages

Reverse mortgages don’t have to be mysterious. At MidWestOne Bank, we want to empower you to make sound financial decisions for your retirement. Here are some misconceptions about reverse mortgages:

• MYTH: The lender will own your home
• MYTH: You will be removed from the title
• MYTH: You cannot have a mortgage on your home
• MYTH: Your Medicare and Social Security benefits are affected
• MYTH: Your children lose their inheritance

Reverse mortgages don’t have to be intimidating. By arming yourself with the knowledge, you’re setting yourself up for a sound financial future.

Reverse Mortgages from MidWestOne Bank

Making well-informed decisions that align with your goals is essential when planning for your retirement and reverse mortgages can be another tool in your financial plan. Whether you seek to supplement retirement income, cover medical expenses, or pursue other financial goals, a reverse mortgage may be a viable option for you. Our experienced professionals at MidWestOne Bank are here to support you throughout the process.

For more information and to discuss whether a reverse mortgage or other alternatives would help you best meet your financial goals, don't hesitate to reach out to us.

¹The HECM loan program is offered through the Federal Housing Administration (FHA) and should not be viewed as a government benefit; mortgage insurance is required.

²Regular payments must be made for taxes and insurance, however. Loan Repayment: Repayment of loan balance, fees and compounded interest will be required when a maturing event occurs. Examples of a maturing event include, selling the home, borrower no longer occupies the home or is deceased, not paying homeowners insurance and property taxes, or not keeping the home in good repair, as required by the FHA. Failing to meet these requirements can trigger a loan default that can lead to foreclosure.

³Your existing mortgage, if any, must be paid off before obtaining any funds from a HECM loan; you can use proceeds from the HECM loan for this purpose.

⁴If your home needs repairs to be eligible for a HECM loan, you may be able to use the proceeds of the loan to accomplish this.