Reverse Mortgages

The majority of reverse mortgages are called HECMs (Home Equity Conversion Mortgages), which are insured by the FHA (Federal Housing Administration). You must be at least 62 years of age to qualify, and similar to a traditional mortgage, your home is used as collateral to obtain the loan.

A reverse mortgage is often attractive to those who are approaching retirement age, simply because you're not required to pay back the loan, unless you move out of the home. You'll still maintain your title to the property as well. The extra funds can be used to cover a variety of expenses from financing home improvement to supplementing your retirement income. Some people may get a reverse mortgage to pay off their existing mortgage debt, thereby trading one loan for the other.

There are certain responsibilities that come along with a reverse mortgage. It's not free money. It's still considered a loan, and if you don't meet the terms of your agreement, you may be required to pay more that what you expected or face foreclosure. It's important to evaluate your circumstances as well as your short-term and long-term goals before considering applying for the loan.

Here's What You Should Consider

If you have an existing mortgage, determine if you have enough equity in your home to pay off your current loan balance. The principal limit of a reverse mortgage is determined by several factors, including the property's value, your age, and interest rates. Consider getting a reverse mortgage, if the new loan will cover the remaining balance of your current loan plus provide you with extra funds that you can use for anything else.

A reverse mortgage will shrink the equity in your home. You don't have to use all of the equity for the loan. You have the option to use a portion of it.

When you apply for the mortgage, make sure that it's for your primary residence. You qualify for a reverse mortgage, if you can provide valid information to indicate that the property is where you live the majority of your time. In addition to maintaining it as your primary residence, you can't be away from your home for a significant period of time.

When you're approved for a reverse mortgage, determine what are the upfront fees. You may not need to bring cash during closing to pay these costs. The loan may cover the amount of upfront fees, but it'll reduce the total of what you'll actually get from the loan. Also, there are three main options to receive the money that is owed to you, which is through a line of credit, a full lump sum of money, or monthly payments.

After getting the mortgage, you will need to keep your home maintained in good condition. The lender will provide information about what's required in regards to home repairs.

With a reverse mortgage, interest charges and premiums for mortgage insurance are accumulated on a monthly basis. So, if you choose to move out of the home, you will owe the loan principal as well as additional costs that you haven't already paid.

There are several ways to pay your mortgage insurance premiums. You can pay the insurance company directly or part of the reverse mortgage loan can be set aside to make these payments.

If you sell your home after you acquire the reverse mortgage, determine if the balance of the current loan is greater or less than the value of your property. If it's less, and you sell the home for it's fair market value, it will cover this balance. However, if you owe more than the home value, you may still be able to pay off any remaining balance with your mortgage insurance.

Weigh Your Options

If you're in the market for a reverse mortgage, be sure to shop around and consider all of the options that are available to you. You'll want to make sure that you're carefully weighing all of the factors involved, so that you can make a decision that works best for your needs.