Friday, February 1st, 2019
It’s time to let reverse mortgages out of the doghouse.
This loan option got a lot of negative publicity in the past — but many of those issues have been addressed. Today, for the right borrower — a senior homeowner who wants to age in place, for example — reverse mortgages can be useful.
We live in a world where people don’t have pensions anymore, and the cost of home health care is really expensive. The reality is that reverse mortgages are something that can work for a small percentage of people who fully understand what they’re getting into — and for whom there isn’t a better option.
Homeowners sitting on significant equity due to rising home values or because they’ve paid off their mortgage could be a good fit. They can, of course, unlock that equity by selling their properties or getting home equity loans or lines of credit. But for older Americans who want to stay in their home or supplement their income without assuming additional debt, a better option might be the reverse mortgage.
With a reverse mortgage, as long as the borrower lives in the home, he or she isn’t required to make monthly mortgage payments. Instead, when the borrower dies or moves, the loan becomes due. Should the property value fall over time, the bank is on the hook, not the homeowner.
Borrowers must pay closing costs associated with the reverse mortgage, and are responsible for expenses related to maintaining the property, plus taxes and insurance.
The majority of reverse mortgages originating in the U.S. are Home Equity Conversion Mortgages (HECM), insured by the U.S. government. These loans, for homeowners 62 or older, allow seniors to withdraw up to $679,650 in equity, depending on their age, the appraised value of the home and the current interest rate.
Here are some things to consider when looking at a reverse mortgage.
• Consult a financial professional. Reverse mortgages aren’t right for everyone, such as homeowners who would like to bequeath their property to heirs. Talk to a financial professional about options.
• Look for the best deal for you. Reverse mortgages terms vary widely depending on the investor that plans to purchase the loan. Shop around. While most of the terms are set in stone by secondary investors, terms, closing costs and time frames for closing vary. • Be objective. Don’t think of reverse mortgages as a harmful product. It’s really just another mortgage option… except that you’re paying a higher interest rate for the ability to not have to make monthly payments.
• Be objective. Don’t think of reverse mortgages as a harmful product. It’s really just another mortgage option… except that you’re paying a higher interest rate for the ability to not have to make monthly payments.