Seniors looking for additional income may find applying for a reverse mortgage a lucrative option. However, reverse mortgages can change your finances both positively and negatively. Here are some helpful tips to know if a reverse mortgage is right for you:
For starters, what is a reverse mortgage? Reverse mortgages are exclusive to senior citizens, allowing for them to receive a mortgage payout based on their home’s current equity.
How do they work? A reverse mortgage allows for borrowers to access a portion of their home’s equity and use their home as collateral. In most cases, the loan does not need to be repaid until the homeowner moves, or the property is otherwise vacated. As long the home is occupied, the owner is not required to make any monthly payments towards the loan balance.
Are you eligible? Citizens 62 and up can apply for a reverse mortgage.
There are a few key benefits that can be gained from reverse mortgages, but they work best for people in specific circumstances. For example, reverse mortgages make sense for homeowners who are not looking to move in the near future. If you are contemplating a move, it’s not particularly wise to apply for a reverse mortgage. If you are able to keep up with your home’s maintenance and taxes, reverse mortgages are also worth considering for supplemental income. Assessing your current financial situation can help determine if a reverse mortgage is right for you.
Reverse mortgages are calculated differently for everyone, depending on various factors. These loans are more profitable for certain people, as they are usually calculated based on the value of your home, interest rate, and appraised value. Generally, the older you are and the more valuable your home, the higher a loan you will be eligible for.
How can a reverse loan financially impact me positively? There are no monthly payments from the borrower. The proceeds from the loan can be ideal for paying off debt or the existing mortgage of the house. Additionally, they can provide a monthly cash flow, you would not receive otherwise.
There are still drawbacks to consider. When it does come time to vacate the home, you may be faced with high closing costs. A borrower must also maintain the house and pay property taxes and homeowners insurance. A reverse mortgage is ultimately derived from a key asset of your estate. The only reverse mortgage insured by the U.S Federal Government is called a Home Equity Conversion Mortgage or HECM. A HECM requires multiple other fees and charges according to HUD (U.S Department of Housing and Urban Development)
How do I receive money from a reverse mortgage? Reverse mortgages can be distributed in a variety of different ways such as a lump sum payment, line of credit, or monthly payout. If you choose to move forward with a loan, decide which is the most financially viable option for you.
Who should not seek a reverse mortgage? If you are struggling to keep up with the monthly payments of your home, a reverse mortgage will not be profitable. If the home is no longer your primary residence after a 12-month period, you will need to immediately repay the loan. Either by repaying the loan outright, or putting your home up for sale to settle the cost.
Is a reverse mortgage right for me? If you’re still wondering if a reverse mortgage is profitable for you, it’s time to do more research. Reverse mortgages depend on a variety of factors, and come down to an individual’s specific circumstance.
Where can I locate an FHA approved lender or HUD approved counseling agency?
- Visit HUD’s online locator at https://www.hud.gov/program_offices/housing/sfh/hecm/hecmlenders
- Call the housing department’s counseling line at (800) 569-4287
- Learn more about HECMS at HUD’s website https://www.hud.gov/program_offices/housing/sfh/hecm/hecmabou