The reverse mortgage can be an excellent retirement tool for many homeowners age 62 and older. It allows you to borrow money against the equity you have accumulated in your home. In addition to supplementing your income, it also allows you to stay in your home for as long as you like. However, there are many things to consider before obtaining a reverse mortgage.
The amount you get
The amount you can get as a reverse mortgage depends on the type of equity you have built up in your home. If possible, you can do a home appraisal to find out how much you are entitled to borrow. See if the amount is sufficient for your requirements and then make your decision. The good news, however, is that you will still have the title to your home as long as you stay in it. However, you will have to pay property taxes, homeowners insurance, and other fees to maintain your home regularly.
Payment options
When it comes to receiving funds from a reverse mortgage, you have a number of different options to choose from. You can get it as a lump sum, a monthly payment, or a line of credit. You can also try a combination of these. Consider your personal situation before selecting the correct option. If you have a large one-time expense to cover, you can opt for a lump sum. However, if you need the money for your regular living expenses, you will have to choose the monthly payment option. In case you need the money only for emergencies or additional expenses, you can consider looking for a line of credit.
Legislation
HUD continues to change the rules for the reverse mortgage from time to time. They may not affect existing borrowers. But, as a senior homeowner thinking about getting a reverse mortgage, you may need to keep up with all of these rules and regulations. According to the latter, HECM borrowers will now have to pay an initial mortgage insurance premium of 2% of their maximum loan amount instead of the 0.5% they previously paid. This is regardless of how much you withdraw in advance. However, the annual PMI of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. Borrowing limits have also been lowered compared to what they were previously.
Rate
There are many upfront costs associated with reverse mortgages, such as the loan origination fee, appraisal fee, mortgage insurance premium, and closing costs. They can go up to 3-4% of the loan amount and are generally financed by the loan. Apart from these, the lender may also charge some loan service fees. Many reverse mortgage lenders may contact you through reverse mortgage leads. Check with all of them about the fees involved before signing an agreement with any of them.
Payment plan
Unlike the traditional mortgage, reverse mortgages do not require monthly payments. They become refundable only after you pass away or move out of your primary residence. This is not an option you should consider if you are considering moving out of your home in five years. If you do, you won’t be able to recoup the closing costs you pay against the reverse mortgage you borrowed.
Family opinion
Talking with your family members is very important before taking out a reverse mortgage. Your heirs may want to keep your home after your death. In most cases, borrowers use all equity when they take out reverse mortgages. And once the borrower dies, the home will have to be sold to pay off the loan. If family members want to keep the home, they must have alternative means of financing to repay the mortgage. Find out what your family members would like to do with your home before taking out your mortgage.
Use
How you use the reverse mortgage will determine whether you would benefit from taking out one. There are no restrictions on how to use your mortgage amount. You can use it for your ongoing living expenses, take a family trip, or cover your kitchen renovation costs. However, you will still need a plan before you receive the cash. Your age also matters when it comes to using the funds from this type of mortgage. For example, if you are still 60 years old, you may want to avoid unnecessary expenses so you don’t run out of funds at a later stage.
Alternative options
It will work for you if you have few financial resources and if your family members have no interest in keeping or inheriting your home. However, if you try to see the big picture, you may find many other options. See if you have other income or assets to sell. You can sell your home to your children, sell your home, refinance your existing mortgage, or even decide to downsize and start living in a retirement community.
The reverse mortgage is available to all homeowners age 62 and older. However, it may not meet everyone’s requirements. You will need to find out if this is the right option for you before deciding to borrow. Make sure you know the rates and the legislation and that you have a defined usage and payment plan. Also look for alternative options that better suit your needs than a reverse mortgage.
This mortgage is a life-long decision that can help you lead your retirement life peacefully and comfortably. However, you may want to make sure it is the right decision before answering “Yes” to one of the mortgage lenders who approach you through live mortgage leads.