Are Reverse Mortgages Right For You?

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Senior couple holding model house

To obtain a reverse mortgage, you must be 62 year old or older. With a reverse mortgage, you convert some of the equity in your home into cash. While commercials promise that you can live in your home until you die, there are some very notable exceptions.

Caveats to Consider

You retain the title to your home so you are responsible for all costs associated with home ownership. If you cannot pay your taxes or your house is rendered uninhabitable due to some type of catastrophic damage and cannot be repaired because you did not maintain insurance on the property, the owner of the reverse mortgage can demand immediate repayment of the loan.

If you decide to sell your home and move into a nursing home, you will have to begin repaying the loan after twelve months. You must maintain the home as your principal residence or you will have to begin paying back the loan.

While the money you receive on a reverse mortgage is not taxable, the amount you owe grows over time because interest is charged on the outstanding balance monthly. While some are mortgage center loan rates arefixed rate loans, most have variable rates. There are three types of reverse mortgages. The first is the single purpose reverse mortgage offered by nonprofit organizations or state and local agencies. These are the least expensive reverse mortgages, but they are extremely limited.

The money can only be used for one purpose, like paying property taxes. While those with a small or medium income can usually qualify for these loans, they are very restrictive.

A proprietary reverse mortgage is a loan from a private lender and the costs to obtain one of these loans can be quite high. The advantage of these types of loans comes for those who own a home that has a high value and/or on which there is a small mortgage. You may be able to get a greater amount of money than you would with another type of reverse mortgage under these conditions. Predatory lenders frequently target seniors, make sure the loan is federally insured to protect yourself from fraud.

Finally there is the HECM or Home Equity Conversion Mortgage which is a federally insured reverse mortgage backed by HUD, the U.S. Department of Housing and Urban Development. The down side is that the fees can be quite high. There are no restrictions on how you spend the money you receive; however, before obtaining an HECM, you are required to meet with a HUD counselor. The counselor charges for his or her time, usually about $125 or less. If you are considering a reverse mortgage, talk to a HUD counselor.

The money you receive on a reverse mortgage will vary based upon the amount you still owe on the house, the condition and age of the house, the interest rate on your home loan and your age. The older you are, the more money you will likely receive because the buyer will not have to wait as long to obtain your house.

 

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