The most popular type of reverse mortgage, called a Home Equity Conversion Mortgage, or HECM, is available to eligible homeowners over 62.
To get an HECM, a person must also have enough equity in their home to make the mortgage a good investment for the lender and borrower alike.
To review how an HECM works, the security for the reverse mortgage is a person’s home equity, much like a home equity line of credit. However, the difference is that the borrower does not have to make monthly payments on their loan.
Instead, the owner will agree to remain in their home and keep it maintained at their expense. They will also agree to keep insurance on the home and pay property taxes and other required assessments and fees, including HOA dues.
All the while, the balance of their loan will increase as the lender earns interest and fees on the loan. When the owner leaves the home, sells the home or dies, the loan comes due in full.
For seniors who have equity in their home and expect it to grow, the HECM is a way to get funds that they can in turn use to have income in their retirement and old age. This income may be helpful for seniors who, after leaving the workforce, find it harder to manager expenses with lower income.
Although they cannot deduct the interest on their loans, it is important to remember that these loan proceeds are not income for tax purposes.
A Connecticut resident should consider whether a reverse mortgage is right
Not everyone in Connecticut and Massachusetts who qualifies is a good candidate for a reverse mortgage.
For example, someone who is planning to move whether for medical reasons or because they want to retire to another part of the country may want to explore other options.
Furthermore, there are some legal considerations involved with reverse mortgages. To give one example, having a reverse mortgage may impact a person’s eligibility for certain government programs, including eligibility for Medicaid.
Taking out a reverse mortgage is an important legal and financial step. Residents of Woodstock and the surrounding areas should make sure they understand their options.