Reverse mortgage loans: 10 things to consider
What is a reverse mortgage? If you're 62 or older, you may qualify for a reverse mortgage, which converts home equity to cash. But to avoid problems down the road, it's important to understand precisely how reverse mortgages work and how they may impact your home and finances in the future.
Before applying for a reverse mortgage, review the answers to these common questions on these products.
- Why is it called a "reverse" mortgage? Regular mortgages require that you make monthly payments to the lender. With a reverse mortgage, the lender pays you.
- What will it cost? The cost of a reverse mortgage can vary according to lender, the payment option you select, and customary lender charges in your area. Government-insured Home Equity Conversion Mortgages (HECMs) may cost less than other reverse mortgages, as their fees are government-regulated.
- Will I still own my home? A reverse mortgage does not require transferring title to your home.
- Am I still responsible for paying property taxes, hazard insurance and home maintenance? Your lender has a security interest in your home, and you'll be required to protect that interest by keeping your home in good condition and paying required taxes and insurance costs.
- Do my existing mortgage loans have to be paid off? If you currently owe on mortgage loans, including home equity lines of credit, your reverse mortgage lender will require these loans to be paid off from the proceeds of your reverse mortgage.
- What will happen to my mortgage debt? It's important to understand that finance charges and lender fees are added to the amount you owe, so your mortgage debt will grow.
- How much can I get? How much you can borrow depends on variables including your age, the value of your home and the amounts of any existing mortgage loans. When shopping for a reverse mortgage loan, ask potential lenders to explain options for disbursing payment to you, and the finance charges for each option. Typically, you can choose a lump-sum disbursement, scheduled disbursements or a line of credit that allows for withdrawing funds as needed. Some reverse mortgages allow combinations of withdrawal options.
- What happens if my loan balance exceed the value of my home? The cap, or non-recourse limit, is the most you or your heirs will have to repay when your reverse mortgage must be repaid. Lenders cannot pursue repayment through your income, assets or heirs. Your reverse mortgage will typically be repaid when your home is sold.
- When does a reverse mortgage have to be repaid? A reverse mortgage does not have to be repaid until you die, you or your heirs sell your home or you permanently vacate your home.
- Are there other things to keep in mind? Reverse mortgages may have potential tax and financial implications. Seek professional financial advice to clarify how a reverse mortgage could impact your finances.
Before contacting potential lenders, make a list of other reverse mortgage questions you may have. Keep asking questions until you're confident that you're comfortable with all aspects of the proposed deal.