What is a reverse mortgage? What are some of the pros and cons?

You’ve probably seen one of the many commercials on TV for a reverse mortgage, and you’re probably wondering if you should get one for yourself or, for your older loved one. In this short article, we’re going to talk about what exactly a reverse mortgage is, and what are some of the pros and cons of getting a reverse mortgage so you or your loved one can make an informed decision about getting one.

A reverse mortgage is sometimes called a home equity conversion mortgage (HECM). This type of loan doesn’t require the homeowner to make monthly mortgage payments (though they are still responsible for the property taxes, homeowner’s insurance, and HOA fees if any),  but it allows the homeowner to access the equity they’ve built up in their home.

Here are some of the pros of a reverse home mortgage:

  • It allows people on a fixed income to remain in their homes until their death, without worrying about the financial burden of a mortgage.
  • The homeowner keeps their home, regardless of their financial straits.
  • The money can be disbursed in a variety of ways (such as a lump sum cash payment, or a monthly payment of funds).

Here are some of the cons of a reverse home mortgage:

  • The interest rate on a HECM is higher than on a traditional home equity loan.
  • When you die, your heirs are responsible for either paying off the balance of the reverse mortgage or selling the home in order to cover the balance.
  • If you haven’t lived in the home for a year or more, you may not qualify to get the reverse mortgage.

Contact us today to see if a reverse mortgage is right for you or your loved one.

What Exactly is a Reverse Mortgage?

You’ve probably seen the commercials for reverse mortgages, and if you’re a senior citizen, you may have even considered one. Unfortunately, while the commercials do a good job of making a reverse mortgage sound good, they don’t do a very good job of explaining what they actually are. Let’s dive a little deeper into exactly what a reverse mortgage is.

First of all, a reverse mortgage is basically just a loan against your house. It allows you to turn the equity you have in your home into cash. You can draw on it a little at a time, almost like if the mortgage organization was making payments to you, however, whatever you take from the mortgage becomes what you owe, and whatever you owe accumulates interest every month. Payments are not required on the loan. Instead, the mortgage is paid off in full when the house changes hands, usually because the owner either passes away or sells.

As you may have already figured out, it is possible for the amount of the loan to grow to be bigger than the value of the house. Generally the borrower, or their estate, isn’t expected to pay more than the value of the home.

You may be wondering if it is possible for you to get a reverse mortgage. Reverse mortgages actually exist in several countries, but in the United States, you have to be at least 62 years old, and you have to consider the property you want to use in the reverse mortgage to be your principal residence. It’s okay if you still owe a little on the property, but the money you receive from the reverse mortgage must be able to pay that off. If you live in a less traditional property, such as a condo or a manufactured home, you may be wondering if you can still participate. In these cases, more research is necessary, but you are likely to be eligible.

Before accepting a reverse mortgage on your house, you are required to take a counseling course, however, the required courses are often considered to be less than adequate, and it is advisable to do your own research before you apply.

Interested in a reverse mortgage, but aren’t sure where to start? Contact us. We’re experts and can help you with everything you need.