Reverse mortgage loans are a common financial solution for California’s senior homeowners seeking a way to tap into their home equity.
The most common type of reverse mortgage loan is the Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgage (HECM) loan. Unless otherwise stated, we’ll be referring to HECMs when we talk about reverse mortgage loans.
Understanding Reverse Mortgage Loans
Reverse mortgage loans enable homeowners aged 62 and above to access a portion of their home equity without the need for monthly mortgage payments, provided they cover property charges like insurance, taxes and maintenance.
Reverse mortgages can be a great choice for older residents in California who wish to stay in their homes while gaining additional cash flow. The funds from a reverse mortgage can be used for virtually any purpose, such as medical expenses, home improvement or simply enjoying life.
These loans are available to eligible homeowners 62 and older who either fully own their homes or have a low mortgage balance that can be settled using the proceeds from the reverse mortgage loan.
Reverse Mortgage Loan Benefits
Individuals opt for reverse mortgages for many different reasons, including:
Flexible Monthly Payments
Unlike traditional forward mortgages, monthly principal and interest payments are not required. However, the homeowner must cover property-related expenses like insurance, taxes and maintenance. The loan balance becomes due when the homeowner either sells the home, moves out or passes away. This can preserve cash flow for other needs and reduces the borrower’s monthly financial burdens.
Home Value Appreciation
California’s robust real estate market means that many homes bought in the past have appreciated significantly today. As a home’s value appreciates, the available equity increases, meaning many longtime California homeowners can access a considerable amount of equity through a reverse mortgage loan.
Aging in Place
Reverse mortgage loans empower seniors to age comfortably in their homes. Many seniors use their loan proceeds to renovate their homes for aging in place, make repairs they’ve been putting off or even fund their long-term care (LTC) plans.
Supplementary Retirement Cash Flow
A reverse mortgage loan can act as a reliable source of tax-free cash flow to supplement retirement savings, investments and other sources of retirement income. This helps homeowners uphold their quality of life and cover living expenses during retirement, which is more important than ever during times of inflation.*
Financial Flexibility
Multiple payout options are available with reverse mortgage loans, such as lump sums, monthly payments or lines of credit. This flexibility allows California homeowners a way to tailor their reverse mortgages to align with their specific financial needs objectives, whether it’s home renovations, managing healthcare costs or establishing a safety net for unforeseen expenditures.
Non-Recourse Protection
HECMs are non-recourse loans, meaning the homeowner or their heirs will not have to pay a loan balance out of pocket. Their obligation will be satisfied simply by selling the home.
For example, if someone takes out a HECM when the housing market peaks but sells their home years later when the market is much lower, neither the homeowner nor their heirs pay the difference. Conversely, if the home appreciates even further over that time, the homeowner or their heirs are entitled to any leftover equity after the home sale pays off the loan. This non-recourse feature can provide peace of mind to those concerned about passing on debt to their heirs.**
Considering a Reverse Mortgage in California?
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*This advertisement does not constitute tax or financial advice. Please consult a tax and/or financial advisor regarding your specific situation. **There are some circumstances that will cause the loan to mature and the balance to become due and payable. Borrower is still responsible for paying property taxes and insurance and maintaining the home. Credit subject to age, property and some limited debt qualifications. Program rates, fees, terms and conditions are not available in all states and subject to change.