When is a reverse mortgage right for you? The short answer is that reverse mortgages are for seniors. However, you deserve a better answer, and that will take a little explaining. First, there are two categories: FHA Home equity conversion mortgage (HECM) and private company loans.
Since a reverse mortgage pays you instead of the other way around, you need to have sufficient equity in your home to qualify. Additionally, like conventional home lending, reverse mortgages require that the property meets structural requirements.
The HECM Lump Sum Or Annuity
The Federal Housing Administration (FHA) provides the backing for HECM reverse mortgages and reverse annuities and place rules that are much like those of FHA repayment loan requirements. Homeowners over the age of 62 are eligible for HECMs and HUD restrictions apply for property values; these also have the lowest rates of interest for balances. Borrowers don’t have to meet any income threshold.
When is an HECM the right choice? If you need income or access to tax-free funds that don’t compel you to meet income requirements. The payout comes either as a lump sum or an annuity, similar to a home equity line of credit, but without the need to make payments as long as you or your spouse remains in the home.
Private And Jumbo Reverse Mortgages
Privately originated reverse mortgages don’t require that homeowners meet the HUD qualifications for lending. When your home value is greater than the HUD loan limit, you may wish to access oversized “Jumbo” loans. The terms can be more flexible but are often more expensive than an HECM in practice.
When is a private reverse mortgage right? If you have a property that is above the limits for HECMs, you might choose this option, although the interest rate will likely be higher. It may be suitable if you need to pay for long-term care or life insurance.
Use Care And Foresight In Choosing A Reverse Mortgage
There are some risks associated with reverse mortgages, serious hazards that could result in you losing your home right when you are at your most vulnerable. Ask yourself a few hard questions before you commit to a reverse mortgage. Can you find a cheaper alternative? How much will it cost to arrange a reverse mortgage? How will you pay insurance and property taxes? What are your long-term plans?
If you have savings or other investments, they may provide a less expensive alternative. If you have income producing assets such as municipal bonds, you will earn interest and pass them on to future generations as part of your legacy. Reverse mortgages give your assets to Wall Street ultimately.
As with any financial option, there are costs involved in setting them up. The usual title search, appraisal, and other miscellaneous third-party charges apply. There will be an initial mortgage insurance premium and origination fees.
There will be monthly fees that add to the outstanding balance for servicing and insurance. Property taxes are also a consideration and other factors. For example, your ability to maintain the property on a fixed income; if you cannot manage the upkeep, you may risk foreclosure.
If you need funds and can meet the general requirements for a reverse mortgage, make sure to investigate carefully whether it really is the best option available to you. However, if it is the right financing for you, it could be an excellent option that keeps your home a happy one and gives you peace of mind for many years to come.