10 Things You Need to Know About Reverse Mortgages
Posted: February 21, 2019 by Anna Jotham
Option for seniors should be given careful consideration
You’ve probably seen the television commercials about reverse mortgages and how they can be an option for seniors who own their homes and need some extra cash. And while it may seem like a great option to tap into the equity you’ve built in your property, there are many considerations when it comes to a reverse mortgage, and not all of them are immediately apparent, or mentioned in those commercials. So let’s put this under the microscope and lay out some of the many aspects of reverse mortgages that you should carefully consider.
Reverse mortgages: the good, the bad, and the thought-provoking
You must be a homeowner age 62 or older.
The amount you can get for your reverse mortgage depends on the equity you have in your property. If you’ve been paying down your mortgage for a long time and are in the home stretch, you will be able to take out more money.
The youngest borrower determines how much money you can get on the loan. The older you are, the more you can take out. It may be tempting to leave a younger spouse off the loan to cash out a higher amount, but there’s a downside: depending on your loan, that younger spouse may be required to move out at the time of time of the older borrower’s death.
The amount of your loan grows over time. That’s because, you receive money rather than paying a lender.
You must annually certify to the lender that you still live in the home or the loan will come due.
You can opt to take the money several ways: in a lump sum, in periodic payments, or you can get a line of credit that will let you take out money if or when you need it.
Interest on a reverse mortgage is compounded, so it will be added to your loan balance periodically. Interest will be based on the higher loan balance when it is calculated.
Fees and closing costs can be substantial, and if you don’t pay these out of pocket they reduce the equity left in your home. That means if you try to sell your home, you will make less. And if you want to leave your home to your heirs, they will receive less.
The balance of your loan comes due when you permanently move out of your home. That will include all of the money you received plus the interest on the money you borrowed. If you pass away and your heirs want to keep the home, the full amount is due.
You’ll want to be certain you can afford ongoing expenses of home ownership. If you sense that you won’t be able to pay your homeowner’s insurance, your property taxes or other expenses related to your property, know that you could lose your home. The lender can call the loan due for any of these reasons.
Reverse mortgages — a solution for some, a risk for others
There are many reasons someone might take out a reverse mortgage on their home, and certainly it may seem like a simple way to tap into the money you’ve invested in your property to pay off other expenses or bills. But as we’ve shown here, reverse mortgages carry risks, and they aren’t for everyone. Consider your options carefully, and if you decided to proceed, do some research to ensure you work with a reputable lender. In the end, you’ll protect what you worked so hard to build while gaining access to the finances you need. If you decide instead to downsize and purchase a smaller home, so as not to risk the equity in your current home, we’ll be happy to help you find the right place for you to spend this next chapter of your life.