You may have read the title of this post and wondered, “Reverse mortgages?! What’s that?!”
Well, don’t worry. If you did that, I did the same thing, too, when I first heard the term.
So I turned to Google and found this definition of what a reverse mortgage is from a report published by the Consumer Financial Protection Bureau:
A reverse mortgage is a special type of home loan for older homeowners that requires no monthly mortgage payments. Borrowers are still responsible for property taxes and homeowner’s insurance. Reverse mortgages allow seniors to access the equity they have built up in their homes now, and defer payment of the loan until they die, sell, or move out of the home. Because there are no required mortgage payments on a reverse mortgage, the interest is added to the loan balance each month. The rising loan balance can eventually grow to exceed the value of the home, particularly in times of declining home values or if the borrower continues to live in the home for many years. However, the borrower (or the borrower’s estate) is generally not required to repay any additional loan balance in excess of the value of the home.
I also happened to receive this article from Nathan Hoffman, someone I recently got acquainted with via e-mail. Sharing it here with you all, in case some of you may find helpful.
Important Points About Reverse Mortgages
If you are looking for a home loan that won’t require you to pay a little back each month then a reverse mortgage might be right for you. The loan involves borrowing money based on your home’s total value and spending it for whatever purposes you desire. By converting the equity to cash you can relieve some of your financial tension during retirement, but there are several other things you must know before signing a reverse loan agreement.
You Must Meet Reverse Mortgage Qualification Guidelines
Reverse mortgages, which are also referred to as home equity conversion mortgages, are only available to those who are at least 62 years of age. Therefore, it is possible to apply for one jointly with your spouse, but you both must meet that age requirement in order to do so. If one of you does not meet the requirement then a joint mortgage agreement will not be allowed.
You must also be aware that anyone signing the loan agreement must maintain primary residency in the home in question. Rental properties and vacation homes are not eligible for Home Equity Conversion Mortgage or HECMs. You also cannot take out a reverse mortgage in your name on a property occupied by friends or family members unless you also live in that home yourself.
You Will Not Automatically Qualify for an HECM Solely Based on Age and Residency
Home ownership and residency, as well as meeting the age requirement of 62 years will not guarantee that you can receive an HECM. Your home must actually have a large amount of value which can be converted. A property with little monetary value cannot be used to obtain a reverse mortgage.
Additionally, as the recipient of a reverse mortgage you will still have the responsibilities of home ownership. Those responsibilities include paying tax and insurance bills. If your potential reverse mortgage lender does not feel that you have significant income sources to cover those expenses your loan request may be denied. However, your lender may give you the option of still receiving the loan but automatically using some of the loan money to cover the costs of those ongoing bills.
You May Not Have Multiple Mortgages if One is an HECM
If there is already a standard home mortgage on your home you may not be eligible for an HECM. If your reverse mortgage lender is willing to give you a reverse loan there will be a mortgage repayment requirement. Under the terms of the requirement the lender will give you reverse mortgage money with the stipulation that a portion of the funds must be used to pay off the original mortgage balance right away.
Not All Lenders Offering Reverse Mortgages Are Government-Monitored
There are some reverse mortgage lending companies which are monitored or insured at the federal level. However, there are also many private lending companies offering such home loans. Private companies may not adhere to the same standards as government-monitored companies. In fact, there are also many supposed reverse mortgage lenders who are actually scam artists. Therefore, you must research the history of the lending company itself before signing up for a loan with a particular lender.
A Reverse Mortgage May Negatively Impact Your Family in the Future
Before obtaining a reverse mortgage you must understand that the balance will come due whenever you cease to live in the home. Although your family’s assets cannot be impacted by your HECM, your home itself can be sold when you no longer live in it, even if members of your family still live there. In order to maintain residency in the home your family members would then have to pay off your loan balance on your behalf.
For more finance-related articles and tips, please feel free to check out our Finances category here on TrulyRichandBlessed.com. Thank you and God bless us all!