I meet with senior homeowners that are thinking about getting a reverse mortgage. Is it a good idea to sign up for a reverse mortgage? Could the government take my property? Whose home is it really after I get a reverse mortgage? These are definitely authentic questions. Other parts of life have positives and negatives. This is also true with a reverse mortgage loan. Obviously you need to inform yourself about the options you have along with the pros and cons of a reverse.
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The PROS of Reverse Mortgages: (also called HECM – heck-uhm)
Increase your monthly cash flow for life or for a specified term. You can learn more about the reverse mortgage home loan optionsĀ here.
You aren’t bound to the decision you initially make. You could make changes to the way you receive equity from your home at any time, assuming equity remains. The remaining Line of credit grows month after month at 1.25% over the current interest rate. This is a way for many seniors to be able to stay in their home and be able to afford care for themselves and the property.
Relocating can cause emotional chaos for a lot of elderly home owners. Memories were made in your “home sweet home”, and close proximity to loved ones and remaining in your town might be a good choice.
You do not have to own you home free and clear to qualify for a reverse mortgage. There are no out of pocket costs other than the appraisal fee and HUD counseling. Some HUD counseling companies will waive the charge.
You can not be evicted from your home as long as you are abiding by the agreement in the contract. Mainly these agreements include maintaining your home and paying your taxes, insurance and HOA dues.
You can only refinance into an additional reverse mortgage if you are getting a 5 to 1 ratio. To meet the requirements you need to gain access to $5 of equity for every $1 of cost for the new loan.
Upon the sale of your property you’ll never owe more than the home is worth.
Your financial assets cannot be attached to pay off the mortgage debt, additionally, the debt will never pass to your heirs or your estate. The house stands for the debt (non-recourse loan).
Reverse Mortgages have several safeguards: capped mortgage rates, a restriction on fees, HUD counseling, asset protection (non-recourse loan), no maturation date (cannot become due within a homeowner’s life-time).
Might be a financial tool to help beneficiaries avert a portion of the real estate tax.
Your beneficiaries could possibly claim the interest from your mortgage on their income taxes after your passing away. (Make sure to speak to your income tax advisor for information.)
Now, those are the pros. Super simple, no? Of course the loan officer starts off with the good stuff. Here are the cons:
The Disadvantages of Reverse Mortgages:
They can and quite often are more expensive than a conventional mortgage loan. However, you should not really compare them as they are very different loan products.
You may not leave much if anything for your heirs with a reverse mortgage. Because you do not make payments with a reverse mortgage, you loan balance grows over time. As you loan balance grows it slowly eats up your equity. It is the complete opposite of a typical home loan where equity will increase as mortgage payments are paid.
Selling your home will provide a larger return on your investment than a Reverse Mortgage.
These financing options really do not seem sensible if you are intending on moving in the future.
In the event that you do not pay your taxes or insurance the lender may foreclose on your home.
If you’re not residing in your primary residence for a period in excess of Twelve consecutive months, the Reverse Mortgage will become due. (Assisted living facilities, assisted living, moving, etc.)
You won’t be eligible for needs based programs and assistance such as Medicaid.
When NOT to obtain a Reverse Mortgage:
An equity loan is often a much less expensive way of getting cash out of your property.
{If your primary objective is upgrading your house, a community gift may work far better.|In the event you only need to add a roof, windows or other energy efficient options. If that is the case, grants and assistance might be available. Go here for more reverse mortgage information.
Should you be ill and assisted living or a an elderly care facility is coming up, you should not choose a Reverse Mortgage.
When family and friends believe that a senior reverse mortgage is not a great option, start thinking about their suggestions and preserve an open mind; they have your best needs at heart.
For those who have other options such as moving in with family and friends or the ability to pay for senior living facilities.
A property owner whose residence makes use of more than 25% of the total liveable space for their company is not going to be able to get an FHA Reverse Mortgage.