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Reverse mortgage: A money management tool for people over 62

On Behalf of | Feb 17, 2023 | Real Estate Law

By some accounts,  60% of Americans find themselves cash-strapped, with less than $1,000 in the bank as they face their retirement years. A variety of economic vicissitudes fostered this trend.

At the same time, however, it’s reported that one in four mortgaged homes in the United States are equity-rich, meaning the owner has at least 50% equity. This presents a cash-flow solution just waiting to be tapped and could be very helpful to Connecticut seniors.

How reverse mortgages work

As the term suggests, this loan is a mortgage in reverse. Instead of getting a loan to buy a house, you’re using the house to get a loan or to get access to a credit line, depending on how you choose to receive the funds.

Three kinds of reverse mortgages

There are usually no credit or income requirements for reverse mortgages. Primarily, you must have substantial equity in the property, and it must be your primary residence.

  • Single-purpose reverse mortgage: Available from government agencies and nonprofit groups, this is the lowest-cost option. The loan proceeds will go to one agreed item.
  • Proprietary reverse mortgage: Available from private lenders, there are usually no restrictions on how these loans can be spent.
  • Home Equity Conversion Mortgage (HECM): Ninety percent of reverse mortgages are HECMs, which are insured by the Federal Housing Administration (FHA). HECMs are only available to homeowners who are 62 years of age or older, and there are no restrictions on how these loans can be spent.

If you apply for an HECM, you must complete a free-of-charge credit counseling session with an FHA-approved counselor, and your certificate of completion will be part of your reverse mortgage application.

In addition to credit counseling, if you’re contemplating this option, it’s helpful to consult with skilled counsel experienced in this area of the law. The reverse mortgage is a powerful financial tool, best wielded when informed by proper research and advisement.