Reverse Mortgages – Overview
The amount of information about reverse mortgages on the internet is large, yet people are confused. It’s a recent concept and the program has many requirements.
Reverse mortgages are loans that use homes as collateral and don’t need to be repaid as long as borrowers live in their home. The repayment begins one year after the last surviving home owner moves out or dies.
The amount you can borrow with reverse mortgages is based on how old you are when you apply. The older you are, the more you can borrow. There are other factors, like current mortgage rates.
Here is all the reverse mortgage information, pros and cons, you need to know to make an informed decision:
Pros of reverse mortgages:
1. You stay in your home without making payments. Repayment with reverse mortgages starts 1 year after homeowners move out or after the surviving homeowner passes away.
2. There are many ways of getting a reverse mortgage loan
- lump sum
- equal monthly payments for as long as at least one borrower lives in the home
- like it was a line of credit (when you want to, any amount you want, till you get it all)
- part of it in monthly installments, part of it when you want in the amounts you want for as long as one of the borrowers lives in the home
- part of it in monthly installments for a period you choose, the rest when you want in the amounts you want.
3. Since reverse mortgages are a loan and not income, the money you get is not taxed.
4. Since you don’t have to make payments, there is no need to prove you can repay, no credit or income verification.
5. If there’s equity in the home to be inherited, the heirs will inherit it (they do have to pay off the loan.
6. If the home is worth less than what you borrow, your heirs don’t have to pay back the balance that remains (though the lender gets the home).
7. Reverse mortgages are refinances, so your current mortgage is paid off and, if there’s enough equity in your home, you can pay off other loans as well.
8. Reverse mortgages, not being income, do not interfere with people’s eligibility for Medicare and other government programs.
The cons of reverse mortgages
1. The fees associated with reverse mortgages are higher than those associated with traditional mortgages. The loan origination fees may be higher. There’s the initial FHA mortgage insurance that is added (2% of the value of your home) to the closing costs. And there’s the monthly FHA mortgage insurance (0.5% of the reverse mortgage balance) added to the interest rate.
2. The equity in your home goes down every month. The payments you do not make are added up against the equity.
3. You can borrow less in terms of a percentage of home value, only up to 60%, than you can with traditional programs.
Reverse mortgages conclusion and further help
Now you know the pros and the cons of reverse mortgages, you’re ready for the next step: find out the costs for you and the process. An easy way to do that is to speak with an FHA approved counselor. You can find a HUD-approved counselor online at https://entp.hud.gov/idapp/html/hecm_agency_look.cfm -just fill your state, city and zip code. Or you can call (800) 569-4287. Counseling is low-cost and may even be free. Counseling is required for anyone applying for reverse mortgages; it’s part of the application process.
The advantages of reverse mortgages far outweigh the disadvantages.