I meet with baby boomers that own a house and are very seriously considering getting a reverse mortgage or at the very least, are curious about them. “Is this a good idea in my situation?” Can my house get foreclosed on with a reverse mortgage? “Now the bank will be on the title of my property, not me, correct?” Those are among the most typical concerns that I hear, With many choices in life, you need to determine what makes the most sense. When it comes to getting a reverse mortgage, some critical thinking and decisions should be made. 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)
More cash flow guaranteed by the Federal Government which continues so long as your property is your primary residence. You can learn more about reverse mortgage optionsĀ here.
You’re not stuck with the decision you initially make. You can make changes to the way you receive equity from your home at any time, assuming equity remains. The unused portion of the Credit line grows monthly at 1.25% over the current rate. A great choice for those that wish to remain in there home.
Relocating may cause psychological problems for many older homeowners. Memories were created in your “home sweet home”, and close proximity to loved ones and residing in your town could be a good choice.
You do not have to own you home free and clear to qualify for a reverse mortgage. Generally, the only out of pocket fees you will have are the HUD counseling fee and the appraisal. But other costs may apply based on the situation and type of property.
You can remain in your house no matter what is owed on your Reverse Mortgage. You can’t ever be forced out of your home provided that your real-estate taxes and homeowner’s insurance are paid and as long as you maintain your home.
You can only refinance into another reverse mortgage if you’re getting a 5 to 1 ratio. To qualify you need to gain access to $5 of equity for every $1 of cost for the new loan.
After the sale of your property you will never owe more than the house is worth.
This is what is known as a non-recourse loan. Put simply, you have no personal responsibility for this loan, neither does your estate or your heirs.
Reverse Mortgages have many safeguards: capped interest rates, a restriction on fees, HUD counseling, asset protection (non-recourse loan), no maturation date (cannot become due during a borrower’s lifetime).
Beneficiaries can get a tax break when the property 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 tax advisor for help.)
Everybody likes the good stuff or the pros. Easy stuff right? Of course the loan officer starts off with the good stuff. Here are the cons:
The Negatives of Reverse Mortgages:
They can and quite often are higher priced than a conventional mortgage loan. However, you should not really compare them as they are different loan products.
You might 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’s the opposite of a standard home loan where equity will increase as mortgage payments are paid.
Selling your home will provide a greater return on your investment than a Reverse Mortgage.
Moving from your residence in less than 5 years tends to make a Reverse Mortgage unwise. It doesn’t make good sense to use a Reverse Mortgage short term.
In the event that you do not pay your taxes or insurance the lender may foreclose on your home.
The lending 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 qualify 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 a Reverse Mortgage:
An equity loan could be a more affordable way of getting cash out of your house.
{In the event your primary goal is upgrading your house, a community loan may work far better.|In the event you simply need to add a roof, windows or other energy efficient options. If that is the case, funds and assistance might possibly be available. Go here for more reverse mortgage information.
Once you know you’re going to be moving into an assisted living facility in the very near future.
If family and friends suggest that a senior reverse mortgage isn’t really a great option, consider their suggestions and maintain a balanced view; they’ve got your best interests in mind.
If your children ask you to move in with them, this can be the perfect option to remaining in your own property.
If you are using the home for agriculture.