In this era of rapidly rising inflation, reverse mortgages are looking more and more attractive to long-time homeowners aged 62 and older.
A recent article states that reverse mortgages are so popular, you often see them being endorsed by popular television stars like Henry Winkler, Tom Selleck, and even celebrity’s from the popular “Law and Order” series. The job of these familiar faces is to assure you that by taking out a reverse mortgage, you can use the equity in your home to creative more income in your retirement years.
Generally speaking, a reverse mortgage allows homeowners to tap into their equity. In turn, the lender sends the borrower money, either in the form of monthly payments or a one-lump-sum payment. You can find out a lot more on how reverse mortgages work by clicking onto this link: https://reverse.mortgage/how-does-it-work.
While reverse mortgages can be good deal for most borrowers, in the past, the industry has been criticized for baiting more inexperienced homeowners into not so good financial situations they did not fully comprehend. Of course, the same can be said for any kind of loan a less financially experienced homeowner goes after.
The good news is that these days, consumer protections and regulations have been established that prevent homeowners from getting themselves into financial trouble. That said, even a fiscally savvy and responsible homeowner needs to proceed with caution when it comes to applying for a new reverse mortgage.
Three Reverse Mortgage Choices
The first step in choosing which reverse mortgage option best suits your goals is to educate yourself on what’s out there. The least costly option is said to be a “single-purpose” reverse mortgage. It’s offered by many local and state governments. But keep in mind, it can only be utilized for one specific purpose such as badly needed home repairs.
Backed entirely by private companies, proprietary loans are private reverse mortgage loans. This type of loan is attractive to folks who own an expensive home since it’s possible you can get more money with this particular reverse mortgage, or so states the Federal Trade Commission or FTC.
But most reverse mortgages come in the form of the Home Equity Conversion Mortgage or HECM, which is insured by the U.S. Department of Housing and Urban Development or HUD, along with the Federal Housing Administration or the FHA.
62 is the Minimum Age
In order to qualify for a reverse mortgage or HECM, you’ve got to have reached 62 years of age and still reside in your primary residence. You need to either have paid the mortgage off or have come close to doing so. Your reverse mortgage lender uses that built-up equity to send you tax-free payments.
Sufficient Financial Means
Upon applying for a reverse mortgage, your would-be lender is required by law to perform a full financial assessment on you. It’s possible they will require you to “set aside” funds for paying insurance and taxes while the loan is being processed. You will also be required to pay for typical home maintenance.
Reverse Mortgage Fees
It’s standard operating procedure for your reverse mortgage lender to charge you servicing fees and origination fees when applying for the loan. Loans insured by the Fed might come with mortgage insurance premium payments. Interest on the loan cannot be deducted from your income taxes until the loan is paid off in full.
What Happens After You Die
The good thing about a reverse mortgage is you don’t have to pay even a single dollar on the loan until you either move out of the house or you die. The not so good news is your heirs will be responsible for paying the loan off if you stay in the house until you pass on.
Says the Consumer Financial Protection Bureau or CFPB, “If you have a home Equity Conversion Mortgage…your heirs will have to repay either the full loan balance or 95 percent of the home’s appraised value-whichever is less.”
Upon the death of the borrower, the loan will need to be repaid within 30 days, regardless of whether the heirs plan on buying the home or selling it. One option for the heirs is to turn the home over to the lender which would satisfy the debt.
However, if the loan balance is more than the home is worth upon the death of the borrower, the heirs will not be required to pay the difference. The balance will be covered by FHA insurance.
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