Reverse mortgage can be an excellent retirement tool for many homeowners aged 62 and above. It allows you to borrow cash against the equity that you may have built up on your home. Apart from supplementing your income, it also allows you to stay in your home for as long as you want to. However, there are many things you need to consider before taking out a reverse mortgage.
The amount you get
The amount that you can get as a reverse mortgage depends on the kind of equity you have built up on your home. If possible you can get a home appraisal done to find out how much you are entitled to borrow. See if the amount suffices your requirements and then take your decision. The good thing, however, is that you will still have the title to your home for as long as you stay in it. Nevertheless, you will have to pay up your property taxes, homeowners insurance, and other charges to maintain your home, regularly.
When it comes to receiving funds from reverse mortgage you can choose from different options. 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 right option. If you have any large one-time expense to cover, you may want to go 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 think about going for a line of credit.
HUD keeps changing the rules for reverse mortgage every now and then. They may not affect existing borrowers. But as a senior homeowner who is thinking about taking out a reverse mortgage you may have to keep yourself aware of all these rules and regulations. According to the latest, HECM borrowers will have to now pay an initial mortgage insurance premium of 2% of their maximum loan amount instead of the 0.5% that they were paying previously. This is regardless of how much amount you draw up front. However, the annual MIP of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. The borrowing limits have also been reduced when compared to what they were previously.
There are many initial expenses associated with reverse mortgages such as loan origination fee, appraisal fee, mortgage insurance premium, and closing costs. They may come up to 3 to 4% of the loan amount and are generally financed into the loan. Apart from these, the lender might also charge some loan servicing fees. Many reverse mortgage lenders may get in touch with you via reverse mortgage leads. Check with all of them about the fees involved before you sign up an agreement with any of them.
Unlike the traditional mortgage, reverse mortgages do not require monthly payments to be made. They become repayable only after you pass away or move away from your primary residence. This is not an option that you should consider if you are thinking about moving away from your home five years from now. If you do, you will not be able to recoup the closing costs that you pay against the reverse mortgage that you borrow.
Talking to your family members is very important before taking out a reverse mortgage. Your heirs may want to retain your home after you pass away. In most cases, the borrowers use up the entire equity when they take out reverse mortgages. And once the borrower passes away the home will have to sold off to pay back the loan. If the family members want to retain the home they will have to arrange for alternative means of financing to pay back the mortgage. Find out what your family members would want to do with your home before you take out your mortgage.
How you use the reverse mortgage will determine if you would benefit from taking one out. There are no restrictions on how you use your mortgage amount. You can use it for your ongoing living expenses, go for a family trip, or cover your kitchen renovation costs. However, you will still need a plan before you get the cash. Your age also matters when it comes to using the funds from this kind of mortgage. For instance, if you are still in your early 60s, you may want to avoid unnecessary spending so that you don’t run short of funds at a later stage.
It will work for you if you are short on your financial resources and if your family members have no interest in retaining or inheriting your home. However, if you try seeing the bigger picture, you may find many other options. See if you have any other income or assets to sell. You may 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.
Reverse mortgage is available for all homeowners who are aged 62 or above. However, it may not suit everyone’s requirements. You will have to find out if this is the right option for you before you decide to borrow. Make sure you are aware of the fees and legislation and have a definite plan for usage and repayment. Also look out for alternate options that suit your needs better than a reverse mortgage can do.
This mortgage is a lifetime decision that can help you lead your retired life peacefully and comfortably. However, you may still want to make sure it is the right decision to make before you reply with a ‘Yes’ to one of the mortgage lenders who come to you via mortgage live leads.