Reverse Mortgage Loans: 10 Things to Consider
March 13, 2009
What is a reverse mortgage? If you're 62 or older, you may qualify for a reverse mortgage, which converts home equity to cash. Before applying for a reverse mortgage, check out this useful reverse mortgage information:
1 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.
2 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.
3 You maintain ownership of your home: A reverse mortgage does not require transferring title to your home.
4 You're responsible for paying for 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.
5 Existing mortgage loans must 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.
6 Debt Amount Increases: It's important to understand that finance charges and lender fees are added to the amount you owe, so your mortgage debt will grow.
7 Loan Amount Considerations: How much you can borrow depends on variables including your age, the value of your home, and the amount(s) 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 which allows for withdrawing funds as needed. Some reverse mortgages allow combinations of withdrawal options.
8 Your loan balance cannot exceed the amount your home is worth: 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.
9 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.
10 Potential financial consequences: Reverse mortgages may have potential tax and financial implications. Seek professional financial advice to clarify reverse mortgage information pertaining to your circumstances.
Before contacting potential lenders, make a list of reverse mortgage information and questions. Keep asking questions until you're confident that you're comfortable with all aspects of a reverse mortgage.
Source
Reverse Mortgage Basics: Basic Loan Features
