I talk to senior homeowners daily who have tons of questions regarding the efficacy of Reverse Mortgages. Is it an awful idea or a good idea to get a reverse mortgage loan? Can I lose my home? With a reverse mortgage loan the lending company receives the home, not my family, after I die, correct? Those are all very serious and really good questions. There are all sorts of advantages and drawbacks in every decision. Making a decision about a reverse mortgage is no different. Needless to say you need to inform yourself about the options you have as well as the pros and cons of a reverse.
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The PROS of Reverse Mortgages: (also called HECM – heck-uhm)
Additional cash flow guaranteed through the Federal Government which continues so long as your home is your primary residence. You can learn more about reverse mortgage optionsĀ here.
You can modify your plan whenever you want from a line of credit, cash out, monthly checks, or a combo (dependant upon what remains). Line of credit grows on a monthly basis at 1.25% over the current interest rates. This is a way for many seniors to be able to remain in their home and be able to afford to pay for care for themselves and the property.
Moving can cause mental hardship for many senior home owners. Memories were created within your “home sweet home”, and close proximity to loved ones and remaining in your town can be a good choice.
Reverse Mortgages can satisfy your current mortgage loan or debts, even though your financial obligations are moved to your Reverse Mortgage balance. (Your house doesn’t have to be free and clear to qualify.) There are no out of pocket costs besides the appraisal fee and HUD counseling. Some HUD counseling companies might 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 another reverse mortgage if you are getting a 5 to 1 ratio. To meet the requirements you will need 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 cannot be attached to repay the mortgage debt, and the debt does not pass to your heirs or your estate. The home stands for the debt (non-recourse loan).
Reverse Mortgages have numerous safeguards: capped mortgage rates, a restriction on fees, HUD counseling, asset protection (non-recourse loan), no maturation date (cannot become due during a homeowner’s life time).
Heirs can get a tax break when the home is sold and the interest is all paid at once.
Your beneficiaries may be able to claim the interest from your mortgage on their income taxes after your death. (Make sure to consult your tax advisor for information.)
Everybody likes the good stuff or the pros. Pretty easy, right? Now, I am sure you think that this is where I am going to stop. Fortunately for you I am going to share some of the bad things about reverse mortgages. Here are the cons:
The Negatives of Reverse Mortgages:
A Reverse Mortgage features all of the normal closing costs you find with a regular mortgage loan. Nevertheless, they may be more costly. There is FHA mortgage insurance and additional closing costs, but those costs are standard of any FHA mortgage.
A Reverse Mortgage can decrease your children’s along with grandchildren’s inheritance. 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’s the opposite of a standard mortgage loan where equity increases as mortgage payments are made.
You’ll typically net more money from the sale of your property than you’ll with a reverse mortgage.
These financing options really don’t make sense if you are intending on moving in the future.
In the event that you don’t pay your taxes or insurance the lender may foreclose on your home.
If you are not living in your primary home for a period exceeding beyond Twelve consecutive months, the Reverse Mortgage is set to become due. (Nursing homes, assisted living, moving, etc.)
You might not be entitled to needs based programs and support such as Medicaid.
When NOT to get a Reverse Mortgage:
If you happen to only need temporary access to cash and equity.
{In the event your main goal is upgrading your house, a community grant may work better.|For those who only need to add a roof, windows or other energy efficient options. If that is the case, grants and assistance may be available. Go here for more reverse mortgage information.
If you know you’re going to be moving into an assisted living facility in the very near future.
When your family says you should not get a reverse mortgage, listen to them and have a meaningful discussion with them and the loan officer, together.
If your kids encourage you to move in with them, this can be the optimal alternative to staying in your own house.
A home-owner whose property uses in excess of 25% of the total liveable space for their business will not be able to get an FHA Reverse Mortgage.