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First off, what is a Reverse Mortgage?
If you are a homeowner 62 years of age or older, then a reverse mortgage would be for you! The lender would agree to pay you a certain amount each month based on a portion of the equity in your home. Every month, you will receive a payment on that amount. The only stipulation is that the borrower has to remain in the home, for the loan to not have to be repaid back. If the borrower moves from the home, then the loan must be repaid back. Usually the home is sold and then the proceeds repay the loan.
Who Benefits from a Reverse Mortgage?
There is a reason that Reverse Mortgages are available to people age 62 years or older. Many of them are facing high medical bills, terminal or chronic illnesses and the equity in their home is their primary asset. For those people, a reverse mortgage may provide the cash that they desperately need to help pay those medical bills, while also allowing them to stay in their homes.
According to the Federal Trade Commission the reverse payments do not affect Social Security or Medicare coverage. You will still receive both benefits even if you are tapping into your home’s equity.
The transactions help the banks to make money, so they will charge fees and interest for reverse mortgages. The amounts are added to the loan amount. The interest rate is also variable instead of fixed and so over time, rising interest rates may increase greatly to the cost of the reverse mortgage
Because you will still own the title to your house, you would be responsible for the upkeep and maintenance. The repair bills would need to be paid and the home must be kept in good condition to satisfy the loan.
How Does a Reverse Mortgage Impact Estate Planning?
Some reverse mortgages allows for the surviving spouse to remain in the property without penalty, if the borrower was to pass away. Others do not, so it is important for you to check the fine print and to make sure that your spouse isn’t left homeless after you pass away.
If you are widowed, divorced, or single, your estate must repay the entire cost of the loan, including that accumulated interest. Usually the costs will be covered from your home being sold. However, if you are hoping to leave your home to someone else, then a reverse mortgage may make that impossible.
There are many types of reverse mortgages, each with its own regulations. Rule of thumb would be to read everything in those documents presented to you by the lender and discuss the situation with your financial professional or spouse. Financial relief can usually be obtained from reverse mortgages, but could also be a nightmare to others. Consider those options available and make the best decision for you.
You can also read more about Reverse Mortgages on our website here. Get started, and apply now!
Mortgage Options, Inc. is a licensed mortgage broker NMLS 803458 SC DCA and NMLS 1183586 NC Commissioner of Banks