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A reverse mortgage can be an excellent retirement tool for many homeowners age 62 and older. This allows you to borrow cash in lieu of the equity you may have built up on your home. In addition to increasing your income, it also allows you to stay in your home for as long as you want. However, there are a number of things you need to consider before taking a reverse mortgage.
the amount you get
The amount you can get as a reverse mortgage depends on the kind of equity you have built up in your home. If possible, you can get the home appraised to find out how much you are eligible to borrow. See if the amount is sufficient for your needs and then make your decision. The good thing, though, is that you’ll have title to your home for as long as you live in it. Still, you’ll still need to pay your property taxes, homeowners insurance, and other fees to maintain your home on a regular basis.
payment options
You can choose from a variety of options when it comes to getting funds from a reverse mortgage. You can get it as a lump sum, monthly payments or as a line of credit. You can also try a combination of them. Consider your personal situation before choosing the right option. If you have any large one-time expenses to cover, you may want to go for the lump sum amount. However, if you need the money for your regular living expenses, you must opt for the monthly payment option. If you only need the money for emergencies or extra expenses, you may want to consider taking out a line of credit.
Law
HUD changes the rules for reverse mortgages from time to time. They may not affect existing borrowers. But as a senior homeowner who is thinking of taking a reverse mortgage, you may need to familiarize yourself with all these rules and regulations. As per the latest, HECM borrowers will now have to pay an initial mortgage insurance premium of 2% of their maximum loan amount instead of 0.5% being paid earlier. This is regardless of the amount you withdraw up front. However, the annual MIP of 1.25% has been reduced to 0.5% on the outstanding mortgage balance for all borrowers. The borrowing limit has also been reduced as compared to earlier.
fees
There are several initial costs associated with a reverse mortgage such as loan origination fees, appraisal fees, mortgage insurance premiums and closing costs. They can range from 3 to 4% of the loan amount and are typically financed in debt. Apart from these, the lender may also charge some loan service charges. Many reverse mortgage lenders may contact you through reverse mortgage leads. Do check with all of them about the fees involved before signing a contract with any of them.
repayment plan
Unlike conventional mortgages, reverse mortgages do not require monthly payments. They are repayable only after you pass away or move away from your primary residence. This is not an option you should consider if you are thinking of moving away from your home five years from now. If you do, you won’t be able to recoup the closing costs you paid against the reverse mortgage you borrowed.
family opinion
It is very important to talk to your family members before taking a reverse mortgage. After your death, your heirs may want to retain your house. In most cases, borrowers use the entire equity when they take out a reverse mortgage. And once the borrower passes away, the house will have to be sold to repay the loan. If family members want to keep the home, they will need to arrange alternative means of financing to pay off the mortgage. Find out what your family members would like to do with your home before you take out your mortgage.
Use
How you use a reverse mortgage will determine whether you will benefit from taking one out. There are no restrictions on how you can use your mortgage amount. You can use it to pay for your ongoing living expenses, take family trips, or cover the costs of renovating your kitchen. However, you’ll still need a plan before you can get the cash. Your age also matters when it comes to accessing the funds from this type of mortgage. For example, if you’re still in your early 60s, you may want to avoid unnecessary spending so that you don’t run out of money later.
alternate option
This will work for you if you lack your financial resources and if your family members are not interested in maintaining or inheriting your home. However, if you try to see the bigger picture, you can find many other options. See if you have any other income or assets to sell. You can pass on your home to your children, sell your home, refinance your existing mortgage or even decide to move and live in a retirement community.
A reverse mortgage is available to all homeowners who are 62 or older. However, it may not suit everyone’s needs. Before deciding to borrow, you need to find out whether it is the right option for you. Make sure you are aware of fees and legislation and have a definite plan for use and repayment. Also look for alternative options that suit your needs better than a reverse mortgage.
This mortgage is the decision of a lifetime that can help you live your retired life peacefully and comfortably. However, you still want to make sure it’s the right decision before answering ‘yes’ to one of the mortgage lenders who come to you through Mortgage Live Leads.
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