Reverse mortgages can be a viable financial resource for some, but they aren’t right for everyone. This specific type of loan enables homeowners over 62 to convert a portion of their home equity into cash, received as regular payments, a line of credit, or a lump sum. This arrangement involves sacrificing some equity and paying insurance to protect the lender’s investment in case of non-repayment.
Particularly for older homeowners with limited income sources, reverse mortgages can be beneficial. Yet, they’re not without risks, such as the potential loss of one’s home or the inability to bequeath it to heirs.
Key Considerations for Choosing a Reverse Mortgage
Legacy Concerns:
A reverse mortgage doesn’t require repayment as long as you live in the house and keep up with insurance, property taxes, and other costs such as HOA dues. However, if you move or need to enter assisted living, the loan becomes due. On your passing, your heirs have the option to pay off the loan or obtain a traditional mortgage to keep the house, sell it to cover the loan, or let the bank sell it. If the sale price exceeds the loan balance, the surplus goes to your heirs; if it’s less, mortgage insurance covers the difference. If you plan to leave your home to someone, a reverse mortgage could be inadvisable.
Co-Inhabitant Considerations:
For couples both over 62, both names can be included in the reverse mortgage, allowing the survivor to continue living in the home without immediate repayment. Keep in mind that complications can arise if a spouse is under 62 or if other individuals reside in the home. These individuals must vacate or pay off the loan if you pass away or move.
Non-Borrowing Spouses:
A younger spouse can be listed as a non-borrowing spouse, allowing them to stay in the home without repayment if it’s their primary residence. However, they won’t receive further payments from the reverse mortgage after your passing.
Duration of Stay:
Reverse mortgages are less suited for those planning to move soon or who might need to relocate due to health issues.
Financial Capacity:
Evaluate your ability to afford ongoing expenses like property taxes, mortgage insurance, and home maintenance. Your lender should provide a cost estimate for these. It is wise to check the reverse mortgage services of a local specialist in this area.
Questions to ask
Applying for a reverse mortgage is a significant financial decision, and it’s important to be well informed. Ask for our no-obligation guide. Also, here are some key questions to ask, along with general answers:
1. What is a reverse mortgage?
A reverse mortgage is a type of loan available to homeowners aged 62 or older, allowing them to convert part of the equity in their home into cash. The homeowner can receive funds as a lump sum, fixed monthly payment, or line of credit. Unlike traditional mortgages, there are no monthly mortgage payments. The loan is repaid when the borrower moves out or dies.
Understanding a Reverse Mortgage
2. How does a reverse mortgage work?
In a reverse mortgage, the homeowner borrows against the equity in their home. Over time, the loan balance grows, and home equity decreases. The borrower continues to own the home and must pay property taxes and insurance. The loan is due when the borrower dies, sells the house, or permanently moves out.
3. What are the eligibility requirements?
Typically, you must be at least 62 years old, own your home outright or have a substantial amount of equity, and live in the home as your primary residence. You’re also required to receive consumer counseling and education from a HUD approved counselor.
4. What are the costs involved?
Reverse mortgages come with various fees and closing costs, including origination fees, appraisal fees, and servicing fees. Interest accrues on the loan balance, which can be variable or fixed, and is added to the balance each month.
5. How much money can I get?
The amount varies based on your age, the value of your home, current interest rates, and the type of reverse mortgage. The older you are and the more your home is worth, the more money you can receive.
6. What are the payment options?
You can choose a lump sum, a line of credit, monthly payments, or a combination of these.
7. How will this affect my heirs?
After you pass away or move out, the home can be sold to repay the loan. Any remaining equity belongs to your heirs. If the sale of the home does not cover the loan, FHA insurance pays the difference.
8. What are my obligations as a borrower?
You must maintain the home, pay property taxes and homeowner’s insurance, and otherwise comply with the loan terms.
9. What happens if I change my mind?
Borrowers have a three day right of rescission period after closing the loan during which you can cancel the mortgage without penalty.
10. What are the pros and cons?
Pros include access to cash without monthly payments and staying in your home. Cons involve the diminishing of home equity, potential impact on estate inheritance, and the complexity of the product.
It’s crucial to consult with a financial advisor and a HUD approved counselor, like David Stacey, to understand the specifics of how a reverse mortgage would work for your personal situation. This will ensure that you are making an informed decision that aligns with your financial goals and needs.
For comprehensive information on reverse mortgages, consulting a Reverse Mortgage Specialist is recommended.
David Stacy Reverse Mortgage Specialist
Myrtle Beach, SC 29577
(843) 491-1436
https://www.reverse-info.com
Areas Served: Myrtle Beach, Little River, Surfside Beach, Forestbrook, Conway, Socastee, North Myrtle Beach, Carolina Forest, Columbia, Charleston, Greenville