The reverse mortgage can be a great retirement tool for many homeowners age 62 and older. It allows you to borrow cash against the equity you have built up in your home. In addition to supplementing your income, it also allows you to stay in your home as long as you want. However, there are many things you should consider before taking out a reverse mortgage.
The amount you get
The amount you can get as a reverse mortgage depends on the type of equity you have built up in your home. If possible, you can have a home appraisal done to find out how much you are eligible to borrow. See if the quantity is enough for your needs and then make your decision. The good thing, however, is that you will still have title to your home as long as you remain in it. However, you will have to pay property taxes, homeowner’s insurance, and other fees to maintain your home regularly.
Payment options
When receiving funds from a reverse mortgage you can choose between different options. You can get it as a lump sum, a monthly payment, or a line of credit. You can also try a combination of these. Consider your personal situation before selecting the right option. If you have any major one-time expenses to cover, you may want to opt for a lump sum. However, if you need the money for your regular living expenses, you will need to choose the monthly payment option. In case you need the money only for emergencies or additional expenses, you can think about opting for a line of credit.
Legislations
HUD continues to change the rules for the reverse mortgage from time to time. They may not affect existing borrowers. But as an older homeowner thinking about getting a reverse mortgage, you may need to stay on top of all of these rules and regulations. According to the latest news, HECM borrowers will now have to pay an initial mortgage insurance premium of 2% of their maximum loan amount instead of the 0.5% they previously paid. This is regardless of the amount you withdraw up front. However, the annual MIP of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. Borrowing limits have also been reduced compared to what they were previously.
Fee
There are many upfront costs associated with reverse mortgages, such as the loan origination fee, appraisal fee, mortgage insurance premium, and closing costs. They can represent between 3 and 4% of the loan amount and are generally financed with the loan. Apart from these, the lender might also charge some fees for servicing the loan. Many reverse mortgage lenders may contact you through reverse mortgage leads. Check with all of them about the fees involved before signing an agreement with any of them.
Payment plan
Unlike a traditional mortgage, reverse mortgages do not require monthly payments. They become refundable only after you die or move from your primary residence. This is not an option you should consider if you are thinking about moving house in five years. If you do, you will not be able to recover the closing costs you paid with the reverse mortgage you borrowed.
Family opinion
Talking to your family members is very important before taking out a reverse mortgage. Your heirs may want to keep your home after you pass away. In most cases, borrowers use all of their equity when they take out reverse mortgages. And once the borrower dies, the house will have to be sold to pay off the loan. If family members want to keep the house, they will have to find alternative means of financing to pay the mortgage. Find out what your family members would like to do with their home before you take out your mortgage.
Wear
How you use a reverse mortgage will determine whether you would benefit from taking one out. There are no restrictions on how you use your mortgage amount. You can use it for your ongoing living expenses, go on a family trip, or cover your kitchen renovation costs. However, you’ll still need a plan before you get the cash. Your age also matters when it comes to using the funds from this type of mortgage. For example, if you are still in your early 60s, you may want to avoid unnecessary expenses so as not to run out of funds at a later stage.
Alternative options
It will work for you if you have few financial resources and if your family members have no interest in keeping or inheriting your home. However, if you try to look at the bigger picture, you can find many other options. See if you have other income or assets to sell. You can sell your home to your children, sell your home, refinance your existing mortgage, or even decide to downsize and start living in a retirement community.
The reverse mortgage is available to all homeowners over the age of 62. However, it may not suit everyone’s needs. You will need to find out if this is the right option for you before you decide to borrow. Make sure you know the rates and legislation and have a defined usage and payment plan. Also look for alternative options that fit your needs better than a reverse mortgage.
This mortgage is a lifelong decision that can help you lead your retired life peacefully and comfortably. However, you may still want to make sure it’s the right decision before you answer “Yes” to one of the mortgage lenders who come to you through mortgage leads.
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