Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
What Is A Reverse Mortgage?
Is the majority of your net worth as a senior tied up in the value of your home? You can take advantage of that value by turning it into cash with a reverse mortgage.
Always use a lender you trust and ask yourself why you want a reverse mortgage. Do you need to pay for home repairs or property taxes? Before you decide to take out a reverse mortgage, you need to understand what a reverse mortgage is and how it may—or may not—benefit you.
Turn Your Home Into Cash
Reverse mortgages are designed for seniors aged 62 and over, allowing them to convert their home equity into cash income. Unlike a normal mortgage, a reverse mortgage is when a lender pays you monthly instead of you paying the lender. You must have enough home equity built up
You cannot borrow 100% of your home’s value. The amount you are able to borrow depends on your lender and payment plan.
A reverse mortgage is not a cash-out refinance! Cash-out refinances are for all homeowners and users will have to pay P.I.T.I., as well as have a good credit score. There is no minimum credit score requirement for reverse mortgages.
The Types Of Reverse Mortgages Available
There are 3 types of reverse mortgages that determine how much money you will be able to take out:
- Single-purpose: Offered locally and not available to everyone. Subject to specific lender rules, such as only being used for home repairs.
- Home Equity Conversion Mortgage (HECM): Federally-backed and can be used for any purpose. Has high upfront costs.
- Proprietary: A private loan that is backed by its developing company.
Many reverse mortgages are federally insured but there are many scams going around that target seniors wishing to take out a reverse mortgage. If you believe that you may have been a victim of a mortgage fraud scheme, contact your local authorities.
There Are High Costs Associated With Reverse Mortgages
Fees for reverse mortgages are not cheap, with the up-front insurance premiums calculated based on the home’s value. For example, for every $100,000 in appraised value, you pay $2,000. As you will be spending a significant amount of equity on interest and fees, be sure that you will continue to be living in your home long term.
You also run the risk of outliving the reverse mortgage and not having enough money left then you need it. It also means you may not be able to pass your house down to relatives.
Work Closely With Your Lender & Financial Advisor
When used correctly, reverse mortgages can be a great financial decision for homeowners. Before taking out a reverse mortgage, work with your lender and financial advisor. They will be able to help you decide if a reverse mortgage is in your best financial interest.