I consult with senior homeowners daily that have tons of questions about the efficacy of Reverse Mortgages. “Is this a good idea for my situation?” Could I lose my home? Who is on title to the property when you are getting a reverse mortgage? Those are all excellent questions and provide a place to begin to educate yourself regarding this loan. With many choices in life, you have to decide what makes the most sense. In terms of obtaining a reverse mortgage, some critical thinking and decisions should be made. Obviously you need to inform yourself about the options you have as well as the pros and cons of a reverse.
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Benefits of Reverse Mortgages: (also called HECM – heck-uhm)
Additional cash flow guaranteed by the Federal Government which continues provided that your home is your primary residence. You can learn more about the options available with a reverse mortgageĀ here.
Provided that there is equity in your home, based on your initial qualifications and growth, you can make changes to the way you access the homes equity. Among the list of awesome features in regards to the line of credit it that the unused part of credit line grows at the current rate plus 1.25%. This is a way for many senior citizens to be able to remain in their home and be able to afford to pay for care for themselves and the property.
Moving may cause psychological chaos for a lot of elderly homeowners. Memories were created inside your “home sweet home”, and close proximity to loved ones and residing in your area could be a good choice.
Get rid of your monthly mortgage payment and pay off those stubborn credit cards and other debt. Almost all of the closing costs can be lumped into the loan with the exception of the counseling fee and appraisal.
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 gain 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.
This is what known as a non-recourse loan. This means that, you have no personal responsibility for this loan, neither does your estate or your heirs.
There are numerous great features with this mortgage like the mortgage loan fees being limited and interest rates are capped.
Beneficiaries could get a tax break once the home is sold and the interest is all paid at once.
Your heirs could possibly claim the interest from your mortgage on their own income taxes after your death. (Make sure to consult your income tax advisor for information.)
Now, those are the pros. Pretty easy, right? Of course the loan officer starts off with the good stuff. Here are the cons:
The CONS of Reverse Mortgages:
A Reverse Mortgage features all of the typical settlement costs you find with a regular mortgage loan. Nonetheless, they may be more costly. There is FHA mortgage insurance and additional settlement costs, however those charges 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 is the complete opposite of a standard mortgage loan where equity increases as mortgage payments are made.
You’ll typically net more cash from the sale of your house than you’ll with a reverse mortgage.
These refinancing options really do not make sense if you are planning on moving in the future.
If you’re unable to pay your real estate taxes or homeowner’s insurance or fail to maintain your home, the lender might require repayment of the debt. (Financial institutions, however, will certainly work with you to cure the default.)
The mortgage company can also begin the foreclosure process if you have not lived in the home for Twelve straight months.
Medicaid could be affected, and you may not be eligible for benefits until you spend down your Reverse Mortgage proceeds each month. (Seek advice from your attorney and Medicaid for info.)
When NOT to get yourself a Reverse Mortgage:
An equity loan is often a less costly way to get cash out of your home.
{If your main objective is fixing up your house, a community grant may work far better.|For those who just need to add a roof, windows or other energy efficient options. If that is the case, funds and assistance may be available. Go here for more reverse mortgage information.
For anyone who is ill and assisted living or a elderly care facility is coming up, do not choose a Reverse Mortgage.
If family and friends suggest that a senior reverse mortgage is not a good option, consider their recommendations and maintain an open mind; they may have your best interests in mind.
If your children encourage you to move in with them, this can be the optimal alternative to residing in your own property.
A homeowner whose house uses more than 25% of the overall livable space for their company isn’t going to be able to get an FHA Reverse Mortgage.