A lot of seniors’ ages 62 and older are turning to reverse mortgages as a means of financial freedom. They can get the money that they need or want with out having to give up their homes. Reverse mortgages has both good and bad points to it. So before you decide to take out a reverse mortgage become knowledgeable about what it is and what it truly means to take out this kind of mortgage. By becoming more knowledgeable you can be better able to decide if this kind of mortgage is right for you and your family.
A reverse mortgage is a loan that enables senior homeowners, to convert part of their home equity into (in some states) tax-free income. They can do this without having to sell their home, give up title to it, or make monthly mortgage payments. This kind of loan becomes due only when the last borrower/s permanently leaves the home.
Reverse mortgages differ from equity loans. With a reverse mortgage you do not have to make any monthly mortgage payments for as long as you stay in the home. Also since there are no monthly payments to make, there are no income qualifications.
With a home equity loan you must meet income qualifications due to the fact that you must make regular monthly payments on the principal and interest.
With a reverse mortgage also you can never owe more than what your home is worth. Since reverse mortgages are known as a “non-recourse” loan, the lender cannot come after your income, your estate or your other assets for repayment of the loan. Put simply your house stands for the debt.
A certified Appraiser will be used to determine the value of your home. This will be used to calculate the amount you receive as part of your reverse mortgage. A certified home appraisal will cost from $350 to $450 dollars.
The same types of fees that are part of a traditional home loan are applied to reverse mortgages. Most the time these fees can be financed as part of the reverse mortgage loan.
Some of those fees are:
An origination fee (most of the times 2%)
Up-front mortgage insurance premium
Standard closing costs, which can vary regionally
A monthly service charge is calculated onto the loan balance into the principal borrowed amount
There are many ways you can receive your money from a reverse mortgage. You can choose to receive it all at once; monthly payments for a fixed period of months or you can get a line of credit. The line of credit allows you to take funds at times and in amounts of your choosing until the line of credit is exhausted
With a reverse mortgage when you or the last surviving borrower dies the house must either be sold to repay the loan or your heir must pay the loan amount back. This leaves your heir losing the house or being made to pay back all the money that you borrowed. Also if you are still alive and must go into a nursing home and no other borrowers are living in the home then the lender will want the loan paid back ASAP.
A person looking into a reverse mortgage is required to participate in a consumer education session with a HUD approved counselor. Afterwards you are given a certificate of borrower counseling. This certificate is valid for 180 days after the counseling session. You must present this certificate to the lender to show as proof that you attended and completed the counseling session. Reverse mortgages are not for everyone, so this process ensures that you are making the right decision.
There are predatory lenders out there that are trying to take advantage of seniors. To protect yourself and ensure that the reverse mortgage you are getting is not a scam contact HUD for an approved counselor to speak with. HUD can be reached at 1.800.569.4287