WHAT ARE REVERSE MORTGAGES?
A reverse mortgage is a type of mortgage available for elderlies aged 62 and older. This type of loan allows homeowners to get cash income in exchange for their homes with no expectancy of payments for a monthly mortgage. Loads of reverse mortgages are known to be federally insured and registered. Still, it is known for the increase in scams targeted at the elderly.
Understanding how it works can be a great financial decision, yet it could be a terrible one for you and your family if you don’t. Although they are not taxable and might seem like income to the homeowner; The IRS considers it a loan advance.
HOW DOES IT WORK?
Your home will serve as collateral for a reverse mortgage. Payments made will be from the lender to the homeowner instead of the other way around. The homeowner decides the type of reverse mortgage to use and the method and decisions of payment
The loan’s interest is added to the loan balance with the title of the home still associated with the homeowner. If you fail to complete payment of the loan, the home equity will increase.
The lender receives the proceeds from the home’s sale and repays the principal, interest, and mortgage insurance if the homeowner dies or moves away. You have to pay proceeds of sale to the home owner when it exceeds the amount borrowed.
WHAT DO YOU NEED TO GET IT RUNNING?
- You must be 62 years and above to apply for a reverse mortgage.
- Your home must be free and clear from all debts and have a substantial amount of equity of at least 50%.
- An origination fee, an up-front insurance premium, interest, loaning servicing fees, and mortgage insurance premiums must be paid by the Borrower.
BENEFITS OF REVERSE MORTGAGE
Other type of loans like home equity loan or line of credit, require you to have an income or good credit to qualify; reverse mortgages do not.
Reverse mortgage allows you access your home equity without selling your home.
What you should Know
- If, in any case, your loan balance becomes higher than your home value because your home value drops from the initial value used to get the loan, you will compulsorily have to sell your home. Of course, selling your home was never the plan.
- The Elderly are victims of scams due to the complex nature of reverse mortgages.
- It is an expensive mode of loan and could get you more debts than ease them off.
- Getting a reverse mortgage can help fix your cash flow issues. You can fix your cash flow if you do not plan to move out or pass the property to your heir.
- Getting a reverse loan is not advisable if you plan to pass your home down to your children,
- If you plan to leave your home, getting a reverse mortgage is also not advisable.
- Speaking to a professional mortgage broker at your local bank is one smart way of figuring out your plans of getting a reverse mortgage. And to know it is the best decision for you and a reasonable retirement solution.
The big questions to ask are, does a mortgage loan work? Is it worth it? Should I do it? Will it be in my favor?
If it will be for the long run, it is not advisable to get a reverse mortgage. The best way to enjoy benefits from reverse mortgages is to understand how the loan works.
Patiently learn how it works and how beneficial or not it could be for you. Get your family involved in your decision making. Lastly, be careful of scammers in the form of reverse mortgage loaners who prey on the ignorance of how complex it is.