Reverse Mortgage: Is It Right For Me? Seniors who have their homes paid off and have a considerable amount of equity in their homes may be able to increase their financial security through a reverse mortgage. One of the main advantages of a reverse mortgage is that it allows seniors to remain in their homes rather than being forced into downsizing or moving to a senior care facility.
What Is A Reverse Mortgage?
A reverse mortgage allows the homeowner to borrow against the equity in their home and receive a lump sum or a monthly stipend from the lender. It’s the opposite of making a mortgage payment – instead of the borrower paying the lender, the lender pays the borrower. There are stipulations on the amount of the reverse mortgage and the length of time that the payments will continue, but many seniors have found them to be a blessing that provides peace of mind and a modicum of financial security.
How Does A Reverse Mortgage Work?
Those who are interested in a reverse mortgage can contact their specific lender to ascertain the lender’s requirements, but generally, a reverse mortgage is processed as follows.
- The lender will evaluate your financial situation, including your credit report, to determine the amount for which you qualify.
- Your property will be appraised and you’ll need to prove that you have sufficient income to maintain the property in good condition.
- You and your lender will determine the best type of reverse mortgage for your situation. Different types of reverse mortgages have different interest rates and disbursement schedules.
- Your reverse mortgage will proceed similarly to a standard mortgage and you’ll close after the paperwork is completed. You’ll have the option to accept it or to cancel it without incurring a penalty.
What Are The Types Of Reverse Mortgages?
There are three types of reverse mortgages.
- Home Equity Conversion Mortgages (HECM), which are the most popular and are backed by HUD. Upfront costs on this type are usually more but there are no restrictions on how the funds are used. However, those who opt for an HECM will need to undergo counseling from a HUD adviser to ensure that they’re familiar with the reverse mortgage procedure.
- Proprietary reverse mortgages aren’t backed by any government agency but usually provide a larger loan.
- Single-purpose reverse mortgages are less common and can only be used for a single purpose. They’re usually offered by non-profits or state or local agencies.
Who Is Eligible For A Reverse Mortgage?
A primary homeowner who is at least 62 years old is eligible to apply for a reverse mortgage. If married, only the primary homeowner needs to be 62. However, there are additional requirements if one spouse is younger than 62.
- You must have only one mortgage or own your home outright.
- The home must be your primary residence.
- If you have a mortgage, it must be paid off using the funds from the reverse mortgage.
- Taxes, insurance, and other obligations such as homeowner’s association dues must be kept current.
- The property must be kept in good condition.
- The home must be a single-family residence, a manufactured home constructed after June 1976, a townhouse or condominium, or a multi-family structure with not more than four units.
Briefly, What Are The Pros And Cons?
- No payments need to be made to reduce the loan balance
- There may be no stipulations on use of the funds
- Spouses not on the mortgage can remain the in the home after the death of the borrower
- Funds can be used to pay off a mortgage if a foreclosure is imminent
- You’ll never owe more than the mortgage balance
- Closing costs can be more expensive than a traditional mortgage and may lower the net proceeds
- Heirs may be responsible for a substantial mortgage payment
- You’ll still be responsible for taxes, insurance, and upkeep of the house.
If You Think A Reverse Mortgage Is Right For You….
Just as you would for a traditional mortgage, shop around for the best rates and fees. Closing costs, interest rates, loan servicing fees, and origination fees can vary widely so do your homework. Beware of scammers. Unfortunately, there are many scams such as contractor loans that involve home improvements and veteran’s loans. The VA doesn’t offer reverse mortgages so don’t fall for this scam. There are other options, such as downsizing, refinancing, and reducing expenses, but if you’re interested in a reverse mortgage, I would consider Tony Meuers and his team in Oregon ( https://www.thereversemortgage.net/reverse-mortgage-portland-oregon/ ). A reverse mortgage can be a great way to add some financial security to your senior years while being able to remain in your home.