I meet with senior homeowners that are thinking about getting a reverse mortgage. Is it a good idea to take out a reverse mortgage? “Will I lose my home? Who is on title to the property when you get a reverse mortgage? These are respectable thoughts. There are all kinds of pros and cons in every decision. Making a decision about a reverse mortgage is no different. So here are a few things that will help you if you want information on Reverse Mortgages:
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Benefits 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 mortgage loansĀ here.
You are able to change your plan anytime from the line of credit, cash out, monthly checks, or a combo (dependant upon what remains). The remaining Credit line grows larger every month at 1.25% over the current rate. An excellent option for those that wish to remain in there home.
Moving might cause psychological turmoil for a lot of senior homeowners. Memories were made within your “home sweet home”, and close proximity to loved ones and residing in your community might be a better option.
You do not have to own you home free and clear to qualify for a reverse mortgage. Generally, the only out of pocket expenses you will have are the HUD counseling fee and the appraisal. But additional fees may apply depending upon the situation and type of property.
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 qualify you have to get access to $5 of equity for every $1 of cost for the new loan.
Neither you, your estate or your heirs can ever owe any more than the value of the home.
Your financial assets can not be attached to repay the mortgage debt, additionally, the debt will never pass to your heirs or your estate. The house represents the debt (non-recourse loan).
There are several nice features with this loan like the mortgage loan fees being limited and interest rates are capped.
Beneficiaries may get a tax break once the home is sold and the interest is all paid at once.
Your beneficiaries might be able to claim the interest from your mortgage on their income taxes after your passing away. (Make sure to consult your income tax advisor for recommendations.)
Those were the pros, the good things. Easy stuff right? Of course the loan officer starts off with the good stuff. Here are the cons:
The Disadvantages of Reverse Mortgages:
A Reverse Mortgage has lots of the normal closing costs you find with a normal mortgage. Nevertheless, they can be more costly. There’s FHA mortgage insurance and extra closing costs, yet those expenses are normal of any FHA mortgage.
You may not leave much if anything for your heirs with a reverse mortgage. Since 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’s the opposite of a conventional mortgage where equity increases as mortgage payments are made.
You will typically net more money from the sale of your house than you will with 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 house.
If you aren’t residing in your main home for a period exceeding Twelve continuous months, the Reverse Mortgage will become due. (Nursing facilities, assisted living, moving, etc.)
Medicaid might be affected, and you may not qualify for benefits until you spend down your Reverse Mortgage proceeds every month. (Check with your attorney and Medicaid for info.)
When NOT to get yourself a Reverse Mortgage:
An equity loan is often a less costly way of getting cash out of your house.
{If your primary objective is fixing up your house, a community loan may work much better.|In the event you simply 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.
If you know you’re going to be moving to an assisted living facility in the very near future.
When family members believe that a senior reverse mortgage is not a great option, give some thought to their suggestions and preserve an open mind; they have your best interests in mind.
For those who have other options such as moving in with relatives and buddies or the capability to spend money on senior living facilities.
If you are using the house for agriculture.