The Pros and Cons of Reverse Mortgages
More and more seniors are opting for the reverse mortgage to help offset retirement expenses and healthcare costs. I hope to answer some questions regarding reverse mortgages as best I can but advise those who may be interested in a reverse mortgage to seek the counseling of an attorney before making any decision on taking out a reverse mortgage.
A good family meeting to talk about the subject is also advised.
What is a reverse mortgage? A reverse mortgage is basically a loan that is available to people who are generally over the age of 62 that enables a borrower to be able to convert part of the equity in their home into cash. Reverse mortgages were originally conceived as a means to help people who were nearing their retirement, and had limited income, to be able to use the money they have put into their home to help pay off debts and/or help cover their basic living expenses, or help pay for their health care, etc. There are no restrictions on how the money is used. The reverse mortgage money does not have to be paid back to the lender until the home is either sold or is vacated for some reason. As long as borrower lives in the home, they are not required to make any monthly payments towards the loan balance, but must remain current on any property tax and insurance payments.
There are qualifications that the borrower must meet such as the age requirement is 62 years old. These qualifications are subject to change.
- The reverse mortgage must also be the primary lien on the property.
- Any prior mortgages must be paid off in full.
- The borrower can us reverse mortgage funds to help pay off any existing mortgages.
- The property must be the borrower’s primary residence.
- The borrower is required to remain current on any real estate taxes, home insurance, and, if applicable, condo fees or the borrower will be susceptible to default.
- The borrower is also responsible for maintaining the property in good order and for making any and all necessary repairs.
- The borrower always retains title and ownership of the home.
- The amount of funds that the borrower can receive depends on the age of the youngest borrower, the value of the home, the interest rate and upfront costs. The funds can be delivered to the borrower as a lump sum, as a line of credit or as fixed monthly payments, either for a fixed amount of time or for as long as the borrower remains in the home. Sometimes the borrower can opt for a combination of ways to receive the funds. There are very little fees involved with getting a reverse mortgage and usually the fees can be paid out of the funds received.
- The only up front fee us usually the appraisal fee. Usually counseling is required by most lenders and there might be a counseling fee over and above the appraisal fee, but both usually are not much more than $200.00 to $250.00 total.
There are various types of reverse mortgages being offered today and it is advisable to talk to several lenders who specialize in reverse mortgages about the different requirements and guidelines that are involved.