I meet with seniors that own a house and are very seriously considering getting a reverse mortgage or at the very least, are curious about them. Is it smart to sign up for a reverse mortgage? Can my house get foreclosed on with a reverse mortgage? Who is on title to the property when you get a reverse mortgage? Those are all very serious and really good questions. Other areas of life have advantages and drawbacks. Reverse Mortgages are not any different. In order to assist you in your fact gathering experience I have included a bunch of information for you.
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The PROS of Reverse Mortgages: (also called HECM – heck-uhm)
Improve your monthly cash flow for as long as you live in the home. You can learn more about reverse loansĀ here.
You aren’t bound to the decision you initially make. You could make modifications to the way you will get equity from your home at any time, assuming equity remains. One of the fantastic features in regards to the line of credit it that the unused part of credit line grows at the current rate plus 1.25%. An excellent option for those that wish to remain in there home.
Relocating may cause emotional problems for many senior home owners. Memories were made within your “home sweet home”, and close proximity to loved ones and residing in your area might be a better option.
Reverse Mortgages can satisfy your current mortgage loan or financial obligations, even though your financial obligations are transferred to your Reverse Mortgage balance. (Your house doesn’t have to be free and clear to qualify.) There are no out of pocket costs other than the appraisal fee and HUD counseling. Some HUD counseling organizations 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 are able to refinance out of the reverse mortgage into a traditional loan assuming you are eligible and there is equity in your home.
Neither you, your estate or your heirs can ever owe any more than the value of the home.
This is what is referred to as a non-recourse loan. In other words, you have no personal responsibility for this loan, neither does your estate or your heirs.
Reverse Mortgages have numerous safeguards: capped interest rates, a restriction on fees, HUD counseling, asset protection (non-recourse loan), no maturation date (cannot become due within a homeowner’s life-time).
Heirs could get a tax break after the property is sold and the interest is all paid at once.
Your beneficiaries may be able to claim the interest from your mortgage on their own income taxes after your death. (Make sure to speak to your tax advisor for advice.)
Those were the pros, the good things. Super simple, no? Sure, the dutiful old loan officer always gives you the good parts, but there are some things that may be drawbacks to Reverse Mortgages. Here are the cons:
The Negatives of Reverse Mortgages:
A Reverse Mortgage features all of the regular settlement costs you find with a standard mortgage loan. Nonetheless, they could be more expensive. There’s FHA mortgage insurance and extra settlement costs, yet those costs are typical of any FHA mortgage.
You might not leave much if anything for your heirs with a reverse mortgage. A Reverse Mortgage really is a growing debt loan because you are not making mortgage payments. It’s the complete opposite of a standard mortgage loan where equity will increase as mortgage payments are made.
You will typically net more cash from the sale of your house than you will with a reverse mortgage.
These refinancing options definitely don’t seem sensible if you are planning on moving in the future.
In the event that you don’t pay your taxes or insurance the lender may foreclose on your property.
The lending company can also begin the foreclosure process if you have not resided in the home for Twelve consecutive months.
Medicaid could be affected, and you may not be entitled to benefits until you spend down your Reverse Mortgage proceeds each month. (Check with your attorney and Medicaid for info.)
When NOT to get yourself a Reverse Mortgage:
For those who only need temporary access to cash and capital.
{In the event your primary objective is upgrading your house, a community gift may work far better.|If you just need to add a roof, windows or other energy efficient options. If that is the case, subsidies and assistance may be available. Go here for more reverse mortgage information.
In case you are ill and assisted living or a nursing home is approaching, don’t choose a Reverse Mortgage.
When family and friends believe that a senior reverse mortgage isn’t really a wise decision, start thinking about their suggestions and maintain an open mind; they have your best needs in mind.
If your kids invite you to move in with them, this might be the perfect solution to staying in your own property.
If you are using the home for farming.