Now, in a couple, you may qualify for a reverse mortgage if one person is at least 62 years of age and the other person is younger than that. Your home generally must be your principal residence — which means you must live in it more than half the year. For the federally insured Home Equity Conversion Mortgage HECM , your home must be a single-family property, a two- to four-unit building, or a federally approved condominium or planned-unit development PUD.
Reverse mortgage programs will lend on mobile homes with foundations that meet the U.
If you have any debt against your home, you must either pay it off before getting a reverse mortgage or, as most borrowers do, use an immediate cash advance from the reverse mortgage to pay it off. Lenders pay particular attention to whether borrowers have enough cash flow to pay their property tax and home insurance bills.
How Does a Reverse Mortgage Work?
The whole point of taking out a reverse mortgage on your home is to get money from the equity in your home. How much can you tap? The more your home is worth, the older you are, and the lower the interest rate and other fees your lender charges, the more money you should realize from a reverse mortgage. For all but the most expensive homes, the federally insured Home Equity Conversion Mortgage HECM generally provides the most cash and is available in every state.
In general, the most cash is available for the oldest borrowers living in the homes of greatest value over current debt net equity at a time when interest rates are low. On the other hand, the least cash generally goes to the youngest borrowers living in the homes of lowest value or with high current debt at a time when interest rates are high.
What is a Reverse Mortgage? | Learn How it Works & If it's Right for You
You can choose among the following options to receive your reverse mortgage money:. Not surprisingly, if you select a reverse mortgage program that pays you over a longer period of time, you generally receive less monthly — probably a good deal less — than from a program that pays you for a fixed number of years. This is also the preferred way to access funds if your financial goal is to limit the equity you pull from your home to its increase in value. The size of the line of credit is either set at the time you close on your reverse mortgage loan or may increase over time.
Generally, during the first 12 months, you can receive up to but no more than 60 percent of the maximum loan allowed. Ironically, but also a blessing, when your financial troubles are caused by falling behind on your mortgage payments, you can get a reverse mortgage to tap the remaining equity in your home to assist in resolving your immediate pending foreclosure.
5 Signs a Reverse Mortgage Is a Bad Idea
Some reverse mortgage lenders even allow you to alter the payment structure as time goes on. Some reverse mortgage borrowers worry about having to repay their loan balance. Here are the conditions under which you generally have to repay a reverse mortgage:. If you fail to properly maintain your home and it falls into disrepair, the lender may be able to make extra cash advances to cover these repair expenses.
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Just remember that reverse mortgage borrowers are still homeowners and therefore are still responsible for taxes, insurance, and upkeep. With a reverse mortgage, the borrower gives up home equity in exchange for payments from the lender. Reverse mortgages are confusing.
It seems like you are getting a loan without having to ever pay it back…not true. The loan options themselves are confusing: lump sum, line of credit, monthly, or combination? The interest rate you are paying is confusing: does it apply only to the loan amount or to all other fees as well? A reverse mortgage is more expensive than a traditional mortgage. Because the lender is taking the risk that, should you live to be years old, he will not receive any payment for that entire time. He is also risking that the house will appreciate in value over those years.
How do he cover this risk? By charging service fees, higher interest rates and greater closing costs. It is not a panacea. Not necessarily so. You still own the house, meaning you are responsible for all taxes, insurance and maintenance. In fact, failure to perform basic maintenance could nullify the reverse mortgage agreement, meaning that all loans would come due. If that were to happen, would you be able to pay those loans? This may not be important, but reverse mortgages will consume most or all equity in the home, leaving little for the descendents. While the reverse mortgage industry has reined in most of the culprits who would prey on senior citizens, there are still some that need watching.
Others simply say whatever it takes to get the sale. A reverse mortgage today could give you less choices sometime in the future. For example, what if the day comes when you are no longer able to take care of the house?
Without the reverse mortgage, one choice would be to sell your house and purchase a smaller house or a condo. However, the reverse mortgage may have drained the equity you once had and greatly eliminated those choices. Reverse Mortgage Disadvantages. Have you or any of your family members had a reverse mortgage? Did you understand it? Any surprises? Would you recommend it to others? This post was included in the following Carnivals:. Joe Plemon is a Certified Financial Counselor and has been coaching people with money since He also served as a Money Columnist for the Southern Illinoisan newspaper since He loves St Louis Cardinal baseball, blues music, online Scrabble, power naps, short term mission trips and family Sunday dinners.