Is a Reverse Mortgage Right for You?
A reverse mortgage is a loan that uses the equity in your property to pay you, rather than you paying into it.
You may choose to receive either a lump sum, monthly payments, or a combination of the two. Or, you can set up a credit line, which can be handy for emergencies, personal use, or even to purchase a vacation home.
If you choose monthly payments, the checks will never stop, as long as you live in the home. Even if you outlive your equity, you are guaranteed to keep receiving the monthly checks. Yes, the bank would lose money in a case like that; but don’t worry about the bank too much. Like insurance companies who pay out in the case of a fire or other mishap, they come out ahead overall.
A reverse mortgage is a non-recourse mortgage. This means that the lender cannot change its course midstream or change the terms in any way.
What Should You Consider?
Along with the money you receive, there is a profit built in for the bank, in the form of an interest rate. Unless you are taking out a lump sum, it is usually an adjustable rate. Both your monthly check and the bank’s profit are subtracted from your equity. When you sell the home, move out, or upon your passing, the amount owed is subtracted from the profit you or your heirs will receive.
Most reverse mortgages today are FHA loans for which there are up-front fees and closing costs. These are also deducted from your future equity. Typically, you don’t pay for any fees or costs out of pocket, except for the appraisal and the required housing counseling (your loan officer will set you up with).
You must continue to pay property taxes and home owner’s insurance yourself. If you let the property taxes become seriously delinquent, the county tax assessor’s office can begin foreclosure proceedings. (Not the lender, but the tax assessor.)
How Might a Reverse Mortgage Help You Financially?
If you plan to stay in your home a long time, a reverse mortgage can be more than just a good deal — it can be a godsend. In addition to providing you with money to live on, it can pay off your existing mortgage and can be used to get much-needed repairs done on your home.
When to Say No to a Reverse Mortgage
If you plan to sell and downsize or move into a retirement community within two years, the up-front cost of a reverse mortgage is not worth the benefit. The length of time you plan to continue living in the home is a major consideration and could be a reason to say no.
Who Can Qualify for a Reverse Mortgage?
You must be at least 62 years of age and have sufficient equity in your property. There are other factors that go into qualifying, so you want to discuss your individual situation with your mortgage loan officer.