Tag Archives for " Reverse Mortgage "

5 Signs a Reverse Mortgage Is a Good Idea

The main reason to take out a reverse mortgage is that your home equity is your biggest asset, you’re short on cash and you don’t have any other viable way to get the money you need for the expenses of daily life. This is not a decision to make lightly, though. It’s likely taken you years of hard work to accumulate your home equity and taking out a reverse mortgage means spending a significant part of that equity on loanfees and interest. Also, reverse home loans are more complex than regular, “forward” home loans – the kind you get when you buy or refinance a house.

5 Reasons to Say “Yes”

If the following five criteria describe your situation, a reverse mortgage might be a good idea for you.

1. You’ll get enough proceeds to solve your financial problems long term.

To qualify for a reverse mortgage, you must either own your home outright or be close to paying it off. In other words, you need to have enough equity that a reverse mortgage will leave you with a reasonable lump sum, monthly payment or line of credit after paying off your existing mortgage balance, if you have one.

Getting quotes from three reverse mortgage lenders and going through reverse mortgage counseling should give you a good idea of whether a reverse mortgage can provide a long-term solution to your financial problems.

Explore how much you could get with each of the payment options. If none of them can provide the liquidity or the large up-front sum you need, you’re probably better off avoiding this complicated loan and its high up-front costs and looking for another way to fix your money troubles. Selling your home, for example, would let you cash out all of your equity instead of just a percentage of it. Renting or moving in with a family member might be a better solution. It would be a waste of your hard-earned home equity to take out a reverse mortgage only to find yourself facing the same financial problems in just a few years.

2. You don’t want to move and staying in your home is your long-term plan.

Staying put can make taking out a reverse mortgage worth it. Not so, if you plan to move in the near future, thanks to those high up-front costs. There are lender fees such as the origination fee, which can be as high as $6,000, depending on your home’s value; up-front mortgage insurance, which is either 0.5% or 2.5% of your home’s appraised value, depending on the reverse mortgage payment plan you choose; and closing costs such as title insurance, a home appraisal and a home inspection. If you move, you’ll have to repay the reverse mortgage, and you don’t want to spend thousands of dollars on a loan you’re not going to keep for a long time.

3. You can afford ongoing property taxes, homeowners insurance and home maintenance.

Keeping up with your property taxes, homeowners insurance and home maintenance is essential if you have a reverse mortgage. If you fall behind, the lender can declare your loan due and payable. Here’s why:

• If you don’t pay your property taxes for long enough, the county tax authorities can place a lien on your home, take possession and sell it to recoup the taxes owed. The tax authority’s claim to your property supersedes the lender’s, so if you don’t pay your property taxes, you’re putting the lender’s collateral (your house) at risk.

• Not paying your homeowners insurance premiums also puts the lender’s collateral at risk because if your house burns down, there’s no insurance to pay the costs of rebuilding. Your lender doesn’t want to get stuck with a burnt-out shell of a home that isn’t worth nearly what you owe on the reverse mortgage.

• Not keeping up with home maintenance also causes your home to lose value. If you don’t replace a failing roof, for example, your home could end up with extensive water damage after it rains or snows. Anyone who might consider buying your house would pay much less than what similar houses in good repair recently sold for in your neighborhood because they’ll have to spend a lot to replace the roof and fix the water damage in order to return the home to good condition.

4. Your spouse is 62 or older.

Any borrower on a reverse mortgage must be at least 62 years old. If you’re married and your spouse isn’t yet 62, getting a reverse mortgage is not ideal. While new laws protect your non-borrowing spouse from losing the home if you pass away first, he or she can’t receive any more reverse mortgage proceeds after you die. If your reverse mortgage is set up as a monthly income stream or a line of credit, your spouse might lose access to a source of income he or she was depending on. Also, reverse mortgage proceeds are based on the youngest spouse’s age, whether that person is on the loan or not. The younger you or your spouse is, the lower the amount you can initially borrow.

If you and your spouse are each at least 62, getting a reverse mortgage might be a good choice. Use an online reverse mortgage calculator and talk to prospective lenders or your reverse mortgage counselor about how the amount of proceeds you will get changes as you get older. If you don’t need the money immediately, postponing this loan may be a good way to increase the proceeds (interest rates and home values also determine your proceeds). And between now and then, you might find another solution to your financial concerns.

5. You don’t plan to leave your home to anyone.

Some people don’t choose to leave their home to anyone. Maybe you don’t have children, or your children are financially successful and inheriting your home won’t make a meaningful difference in their lives. Maybe you have children, but since you worked hard to pay for your home, you want to cash in your equity through a reverse mortgage or other option and spend it all before you die. You’re perfectly entitled to do so.

When you have a reverse mortgage and you pass away, the loan becomes due and payable. For homeowners who have heirs who want to take possession of the house, the heirs have the opportunity to pay the reverse mortgage balance to the lender and take back the title. However, they can’t always do this because they may not have the cash or they may not qualify to get a regular mortgage to buy your home. If your heirs don’t purchase the home, the lender will sell it on the open market to recoup the money it’s lent you through the reverse mortgage. Any positive balance between the sale proceeds and what you owed goes to your estate, and if there’s a negative balance, FHA insurance covers it. So if you’re not concerned about leaving your home to anyone, getting a reverse mortgage might be a good way to get cash.

The Bottom Line

Reverse mortgages are widely criticized, and with good reason, but that doesn’t mean they’re a bad deal for every homeowner in every situation. Even if a reverse mortgage is an expensive option and not an ideal option, it may still be the best option for your circumstances if you’ll get enough proceeds from the loan to solve your financial problems in the long run, if you plan to stay in your home long term, if you can afford the ongoing costs of home ownership, if your spouse is 62 or older and if you don’t want to leave your home to anyone.


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Reverse Mortgage Pros And Cons

If you’re a homeowner who is at least 62 years old and exploring ways to finance retirement, you may be considering a reverse mortgage: a product that allows you to convert your home equity into cash. Whether you are looking for money to pay for a home improvement, cover healthcare expenses or pay off an existing mortgage, a reverse mortgage can provide fixed monthly payments or a line of credit without the need to move or repay a loan every month. While it sounds easy enough, keep in mind that a reverse mortgage is a major financial decision that requires careful consideration and research. To get you started, here’s a quick introduction to the pros and cons of this loan product.

How It Works

You probably purchased your home with a regular or “forward” mortgage, where you make monthly payments to a lender while gradually building up equity in your home. In a reverse mortgage, a lender makes monthly payments to you, gradually purchasing the equity in your property. You continue to hold title to the property, which acts as security for the loan. The loan is repaid when the home is no longer your principal residence, you sell the home or you pass away.

Forward mortgage = Your debt decreases, and your home equity increases.

Reverse mortgage = Your debt increases, and your home equity decreases.



Reverse mortgages offer many advantages:

  • You can often choose how the cash is paid to you: a single lump sum, a regular monthlycash advance, a line of credit where you decide when and how much of your available cash is paid to you, or a combination of these methods.
  • Regardless of how the cash is paid out, you normally don’t have to pay anything back as long as you (or any co-owners) live in the home as a principal residence.
  • There is no required minimum income to qualify (because you don’t have to make monthly repayments).
  • If you receive more payments than your home is worth (i.e., you “outlive” the loan), you will not owe more than the value of the home, according to the Federal Trade Commission.
  • Cash advances are typically non-taxable.
  • Reverse mortgages use up equity in your home, leaving you and your heirs with fewer assets.
    • You maintain the title to the home (you remain the owner).
    • If you have a federally-insured Home Equity Conversion Mortgage (HECM), you can live in a nursing home for up to 12 months before the loan becomes due.
    • Cash advances typically do not affect your Social Security or Medicare benefits.
    • After the home is sold and the lender fees are paid, any equity left in the home goes to you or your heirs.



Reverse mortgages have disadvantages, as well:

  • You must be at least 62 to qualify.
  • You must go through (and pay for) mandatory mortgage counseling.
  • Loan origination fees and closing costs can be expensive (these fees can be rolled in to the loan and financed).
  • You may be charged monthly servicing fees during the term of the mortgage.
  • Most reverse mortgages are variable interest rate loans tied to short-term indexes.
  • Your debt increases over time as interest is added to the loan balance.
  • You cannot deduct the interest until the loan is paid off.
  • The loan can become due if you fail to pay taxes, homeowner’s insurance or other expenses.
  • There are limits on how big a mortgage you can get, and how much you can borrow during the first year.


In Transition

A recent court ruling required the U.S. Department of Housing and Urban Development (HUD) to ensure that both spouses are listed on a reverse mortgage, even if one is younger than 62 and can’t be an official borrower. This will help future borrowers avoid a situation that has left surviving spouses who had not been listed on a reverse mortgage faced with the task of repaying it or losing their home.

In some cases, couples had not listed a qualified younger spouse on the reverse mortgage so they could borrow more money; older borrowers are able to get larger payments than younger people. Now the loan will have to be based on the age of the younger spouse, whether he/she is listed as a borrower or not. How this change will affect non-borrower spouses whose reverse mortgages predate August 4, 2014, is still unclear.

Your Options

If you are considering a reverse mortgage, shop around and compare your options. You will find more than one type of reverse mortgage on the market, including:

  • Single-purpose reverse mortgages, which are offered by some state and municipal government agencies and non-profits;
  • Federally-insured reverse mortgages, known as HECMs (Home Equity Conversion Mortgages), backed by HUD; and
  • Proprietary reverse mortgages, which are private loans backed by an issuing company.

Government-sponsored mortgages may be offered at more favorable rates and may provide more flexibility in terms. However, for those with more valuable properties, proprietary lenders may provide access to larger loans. Research several loans to identify the best deal and never simply respond to a TV ad or other pitch.

After closing, you have three business days (which include Saturdays, but not Sundays or legal public holidays) to reconsider your decision and cancel the loan, without penalty. You’ll have to notify the lender in writing of your decision: Send your letter by certified mail (ask for a receipt) and keep copies for yourself. The lender has 20 days to return any money you’ve paid up until that point for financing

Reverse Mortgage Pros And Cons

The Bottom Line

Reverse mortgages may be a good option for people who want to turn equity into cash. Often, candidates are “house-rich and cash-poor,” meaning they have lots of equity in their home, but not enough income coming in. Because of the high upfront costs and loss of equity, many consider reverse mortgages a last resort.


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