Securing a Vermont Reverse Mortgage

If you’re a senior and you live in the state of Vermont in a home that you own, a specialized financial instrument call the Vermont reverse mortgage may allow you to access the money you need to live on during retirement.

What is a reverse mortgage?

Reverse mortgages in Vermont are offered as a unique, beneficial service to seniors and retirees who need or want to establish a steady stream of retirement income while remaining financially independent.  With this loan, your lender takes over ownership of your home equity and pays you for it in spendable cash.  You don’t have to worry about losing your home or paying the loan back.  The money is your money.

How can reverse mortgage funds be used?

Your lender buys the rights to own your equity and pays you an equivalent amount of cash in exchange for this equity, minus expenses. You can use this cash in any way you want.  Spend it to cover medical bills, living expenses, or other debt obligations.  The money is yours, sourced from your own home equity. 

What types of reverse mortgages exist?

Reverse mortgages have three forms:

• Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
• Single-purpose: backed by nonprofits or state or local government agencies. 
• Proprietary: backed by private entities.

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.

Who can get a reverse mortgage?

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 score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in Vermont, including but not limited to:

• Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
• Closing fees: include all the same fees required of a traditional mortgage closing. 
• Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
• Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds, and for how long?

You can arrange to receive the funds from your reverse mortgage in any of the following ways.

• You can get the money whenever you need it through a customized cline of credit.  This is best if your financial needs are prone to variance from month to month.
• You can get the money as tax free income once per month, in installments paid to you by your lender.  This closely mimics Social Security and other income programs, making the money easier to manage for many seniors.
• You can receive the full payment all at once, as a lump sum, immediately after you sign on the dotted line to close the loan deal.  This is best if you plan to reinvest the money into something else or purchase a different home.

You can combine any of these options, too.  If you need some money right away but want to manage the rest of it through a credit line, you can do this.  Other combinations are available as well.

You don’t have to worry about losing your home in a reverse mortgage.  These mortgages are unlike other loans.  Your lender owns your equity, not your home.  You can live in your home without making any payments on the reverse mortgage for as long as you want.

Does the equity need to be repaid?

You only have to pay the loan back if you decide to sell the home or you choose to move into a new home.  If you remain in your home until you pass away, the responsibility of paying off the reverse mortgage debt transfers to whoever inherits ownership of your home.  This heir can sell the home to pay back the debt.

Vermont Reverse Mortgage Lenders

Compare as many different lenders in your part of Vermont as possible.  Why?  It’s simple.  All lenders run different businesses and charge different fees and rates to administer loans.  If you want to get the best deal on your reverse mortgage and access as much of your equity as you can, you’ll need to compare the deals offered by at least four or five lenders to get an idea of what’s available.

Our reverse mortgage checklist explains more about how this process works.

Vermont Senior Resources

Vermont's Area Agencies on Aging assist seniors with resources for transportation, health insurance, meals, and more. Agencies are not established in every county but phone support is available. Visit the Vermont Seniors site for more information. 

Lenders in: Vermont.