Considering a Reverse Mortgage? Here's Everything You Need to Know: Image: Adobe stock
Reverse mortgages may be thought of as being similar to loans. If a homeowner is at least 62 years old and has a certain amount of equity in their house, they are eligible to take out a loan against it to receive either a lump sum, a set amount that will be paid each month, or a line of credit. In contrast to traditional mortgages, people who get reverse mortgages do not have to make regular loan payments.
The borrower or the borrower’s estate won’t be required to pay the difference to the lender since the program includes mortgage insurance. This protects the lender if the value of the house decreases or if the person lives longer than predicted.
Most reverse mortgages are delayed if you remain a homeowner. The remaining loan balance is repaid when the last living borrower dies, sells the property, or relocates permanently away from the property. Failure to make the minimum monthly payments will increase your total debt. After the mortgage loan has been paid off, the home’s value cannot exceed the remaining balance on the loan.
You are accountable for making repairs, paying property taxes, and maintaining insurance coverage as the owner. If you are unable to make these payments on time, the lender may demand the whole loan amount or use the funds from the loan to cover the missing payments.
When you get a reverse mortgage on your home, you won’t ever have to worry about losing ownership of the property. You do not need to sell your house to the mortgage lender to qualify for a reverse mortgage. You will instead get a loan that works differently than a traditional or “forward” loan.
Although reverse mortgages may appear appealing, not everyone is eligible to get one. Take the following into consideration prior to receiving a reverse mortgage:
A reverse mortgage results in the homeowner receiving cash from the loan. You keep the title to the house but take out a loan against the equity. The lender will often provide tax-free payments in the form of monthly installments or a lump sum. The loan will be discharged if you continue to make the home your primary residence. If you pass away, don’t pay your property taxes or insurance premiums, let the home fall into disrepair, sell it, or cease using it as your primary residence, the obligation becomes due and payable. The creditor cannot sue you or your estate, but they have the right to sell the property. Don’t let a lender rush you. Before you sign anything, get a good understanding of the features and the total cost of a reverse mortgage.
The remaining amount of the mortgage must be paid in full when the last living borrower dies, sells the house, or moves away from the property, regardless of which of these events occurs first. Your heirs will be required to pay either the loan’s principal, interest, and fees or 95% of the home’s current fair market value to retain the property. Whichever amount is lower will be what they pay.
Additional fees are often associated with reverse mortgages. It is normal for there to be fees related to the closure and continuing upkeep. Some lenders charge mortgage insurance. Because of the interest, the total amount that is owed will continue to increase every month. Compare the different interest rates and fees associated with the loans to get the best feasible offer. If you get a reverse mortgage from some different lenders, the costs you are charged will be lower.
Be aware that to avoid defaulting on the loan, you are expected to make timely payments of property taxes, maintain adequate levels of homeowner’s insurance, and keep the house in excellent physical condition. When the payment for the obligation is due, the creditor could use their legal right to foreclose on the property if they have not been paid.
Using a reverse mortgage, homeowners over the age of 62 who have equity in their homes have the chance to enhance their income during retirement, pay for home upgrades, or cover other obligations, such as medical expenses. You should investigate several different choices, including getting a home equity line of credit (HELOC) or refinancing your mortgage, depending on the amount of equity that you have in your property. Before getting into an agreement for a reverse mortgage, it is in your best interest to discuss your options with a qualified counselor first.