When considering a reverse mortgage, understanding the 60% rule is crucial for older homeowners.
This rule, which limits the initial access to home equity, is designed to ensure financial stability over time by preventing borrowers from depleting their funds too quickly.
The rule applies to federally insured reverse mortgages, such as the Home Equity Conversion Mortgage.
FULL STORY: The 60% Reverse Mortgage Rule and What It Means for Older Homeowners Today
Key takeaways
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The 60% rule dictates that borrowers can access only up to 60% of their total loan proceeds in the first year of a reverse mortgage.
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Exceptions to the rule allow borrowers to exceed the cap if necessary to cover existing mortgage payments or mandatory obligations.
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The rule encourages gradual access to funds, promoting long-term financial planning and reducing the risk of exhausting home equity prematurely.
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While the 60% cap may limit immediate cash availability for some borrowers, it eliminates monthly mortgage payments, offering relief to household budgets.
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Older homeowners should carefully weigh the benefits and drawbacks of a reverse mortgage, considering alternatives like downsizing or traditional home equity loans to make an informed decision about their long-term financial plans.
The 60% rule serves as a safeguard against rapid depletion of home equity, encouraging a measured approach to accessing funds that can ultimately contribute to lasting financial security for retirees.
This summary has been generated with AI tools and edited by Realtor.com® News & Insights editors. The full story, written and edited by Realtor.com News & Insights newsroom journalists, is linked at the top of the summary.