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Updated by Kevin Vitali on Oct 10, 2017
Headline for Some Facts About Reverse Mortgages
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Kevin Vitali Kevin Vitali
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Some Facts About Reverse Mortgages

Some Facts About Reverse Mortgages

With a lot of people trying to push reverse mortgages here are some facts about reverse mortgages.

  • A reverse mortgage is for home owners that are 62 or older.
  • You must own your home outright or pay off all other mortgages on your home from the proceeds of the reverse mortgage.
  • Usually a reverse mortgage is a variable rate.
  • You make no required payments towards the balance.
  • The percentage of equity you can borrow against is determined by your age, the appraisal of your home, current interest rates, government opposed limits and the type of payout.
  • You need to qualify and show you have the ability to pay taxes and maintenance.
  • More money will be owed than you borrowed as a reverse mortgage is a negative amortization loan.
  • The borrower and their spouse will stay in the house until death, the house is sold, or you move out.
  • There are high fees and higher interest rates involved with a reverse mortgage.
  • Most often your equity will be eaten up by the reverse mortgage an nothing will be left for heirs.
  • If you have a FHA backed HECM (Home Equity Conversion Mortgage) even if there is more money owed than the home is worth other estate assets cannot be touched.

This list is compiled from What is a Reverse Mortgage? Find out more about Reverse Mortgages and see if it is right for you.

1

Is a Reverse Mortgage Right for You?

Is a Reverse Mortgage Right for You?

The reverse mortgage was designed for the low to moderate income seniors to help fund their retirement. In my personal opinion, a reverse mortgage should be one of the last options you consider to fund your retirement. Reserved for those who have no other resources or funds to tap into.

Learn the pros and cons of a reverse mortgage and get more information to make an informed decision.

Pros of Reverse Mortgages

  • Access home equity. You are able to access your home equity, likely a substantial portion of your wealth, without having to leave your home.
  • Remain in your home. As long as you keep your loan in good standing, you may remain in the home for as long as you live.
  • Defer payments. You can defer payments until you leave the home or pass away.
  • Flexibility. The Home Equity Conversion Mortgage (HECM) program is extremely flexible in terms of withdrawing the proceeds of your loan.
  • Line of credit. HECM’s credit line option can be incredibly attractive, as an unused credit line will grow over time.
  • Pay off debt. It can be useful for paying off a mortgage or expensive consumer debt.
  • Limit on what you owe. Neither you nor your heirs will ever owe more than the home is worth.

Cons of a Reverse Mortgages

  • Can be expensive. Though closing costs are typically financing into the loan, you may end up using up between $5,000 to $10,000 of your home equity immediately.
  • Choices to make with complex tradeoffs. Though you will have help from a HECM counselor and hopefully other advisors, you will need to make a complicated decision.
  • Use up your home equity. In many cases, you will end up using up a large portion of your home equity, both in the cash you withdraw and the interest that accrues over time. This will leave you with less wealth moving forward, and it will reduce the inheritance that you can leave.
  • Move out and the loan becomes due. If you need to stay in a nursing home or an assisted living facility for over a year, the loan becomes due.
  • Risk of foreclosure. Borrowers who do not keep the house in good repair or fall behind on tax and insurance payments face the risk of foreclosure.
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How a Reverse Mortgage can be Paid Out

Payouts on a Reverse Mortgage

There are several different ways you can get paid out on a reverse mortgage.

  • Lump sum up front. Generally this will be where you get the least amount of cash and because you are starting with a large balance interest climbs quickly.
  • Line of credit you can draw on. Perfect if you just need a buffer for unforeseen repairs around the house or extra expenses.
  • Monthly pay out term- for a certain period of time. Supplements your monthly income. Remember it will end at some point and leave you with whatever monthly income you had before the reverse mortgage.
  • Monthly pay out tenure- for the rest of your life. Supplements your monthly income for life. Will probably be considerably less than the term monthly payout but is guaranteed for life.
  • A combination of lump sum and monthly pay out.
Pros and Cons of a Reverse Mortgage

What are the pros and cons of a reverse mortgage? See both the advantages and disadvantages of this loan product for seniors.

FHA Reverse Mortgage Loans

Reverse Mortgage program in Wisconsin, Illinois, Minnesota and Florida. Purchase, refinance or get out of a foreclosure with an FHA (HECM) Reverse Mortgage.

Top Ten Things to Know if You're Interested in a Reverse Mortgage - HUD

Can I qualify for FHA's HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, have the financial resources to pay ongoing property charges including taxes and insurance, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor prior to obtaining the loan.

Reverse Mortgage Loans: What Borrowers Need to Know from the Mass Office Consumer Affairs and Business Regulations

Division of Banks - Reverse Mortgage Loans: What Borrowers Need to Know

If you are considering a reverse mortgage loan, it is important to know that::

  1. Reverse mortgage loans differ substantially from conventional forward mortgage loans.
  2. They are complex financial transactions, which require all borrowers to attend a counseling session.
  3. The types and variations of reverse mortgages are expanding rapidly.
  4. They may impact the accumulated equity in your home.
  5. You should understand the complete transaction, including your obligations and the associated costs and fees, before signing any loan documents.

If you’re 62 or older – and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses – you may consider a reverse mortgage. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. But take your time: a reverse mortgage can be complicated and might not be right for you. A reverse mortgage can use up the equity in your home, which means fewer assets for you and your heirs. If you do decide to look for one, review the different types of reverse mortgages, and comparison shop before you decide on a particular company.

Reverse mortgages are complex, often confusing financial products. If you or an elderly relative are even considering one, it’s important to know all of the risks and pitfalls beforehand. With that in mind, we’ve created this list of facts to help you understand what can really happen if you take out one of these loans.

  • Kevin Vitali is an Associate Broker for EXIT Group One Real Estate.
    He has served the residential real estate community as a full time agent for over 14 years and brings the experience of 100's of transactions to the next purchase or sale of your home.

    Kevin serves: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford

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