If you’re considering taking out an Alabama reverse mortgage to secure a new source of income for your retirement, you’re not alone. Reverse mortgages are used by thousands of seniors to access home equity and apply the wealth that they’ve built over the years to significant expenses.
A reverse mortgage is the opposite of a traditional mortgage, in which borrowers pay lenders in order to build equity in their home. Lenders pay funds to the reverse mortgage homeowner via a lump sum or in payments of a set amount over time.
You can use reverse mortgage funds as retirement income or to pay for living expenses. These mortgages transform your home equity into cash that you can spend on medical expenses, home improvements, vacations, bills, and other obligations. You can use the funds to pay off other debts and even other mortgages if necessary.
Reverse mortgages have three forms:
The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.
Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit history is not a qualifying factor.
There are several costs associated with securing an HECM reverse mortgage in Alabama, including but not limited to:
The funds received through a reverse mortgage can be delivered in several ways:
The lender will continue to provide money through the homeowner's preferred method until the equity in the home has been entirely depleted. If and when reverse mortgage home equity is depleted, the homeowner can continue living in the home until the event they pass away. The lender cannot take possession of the home, even once equity runs out.
The equity need not be repaid unless the reverse mortgage homeowner moves, sells the home, or passes away. If the homeowner passes away, ownership of the home and the reverse mortgage debt will pass to any heirs, who can then sell the home to pay off the debt.
Federal regulations ensure that lenders cannot collect more money beyond what the home is worth, which means heirs will not be obligated to repay any money than the home value.
As with any mortgage program, you must take the time to find the right lender to close your reverse mortgage loan. In Alabama, there are many lenders who specialize in working on these loans. Any one of these lenders will be willing to provide you with advice and assistance.
Make sure you compare mortgage rates offered by multiple lenders. If you contact only one lender, he or she may quote you a rate that’s above the average market rate You’ll lose more of your home equity with a higher rate. Find the lender who offers the lowest rate on a reverse mortgage.
The most important financial consideration to evaluate when selecting a lender for your reverse mortgage is the cost of closing the loan. Lenders charge origination fees and other expenses to the seniors they work with. Locate the lender who charges the lowest fees. Refer to our Reverse Mortgage Checklist for information on the application process.
The Alabama Department of Senior Services aids seniors by offering information about caregiver resources, aging and wellness support and other programs including home meal delivery to seniors in order to aid them in maintaining independence in their own homes. Many offices are available, including those in Montgomery, Wilcox, Jefferson, Mobile, and Tuscaloosa. To find an office near you, browse the Department's Area Agency map.
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