Is reverse mortgage information the best option for homeowners over 62 who need some extra money? We examine the advantages and disadvantages of reverse mortgages.
If you watch daytime television, you'll almost likely see an advertisement that asks, “Do you own your own home? Over 62 years old? Would you like more cash? Get a reverse mortgage loan after that! You won't need to do anything for the bank to give you money! You will still be the owner of your home, too!
These give the impression that reverse mortgages are either a fraud or too good to be true. However, the reality is that reverse mortgages can be legitimate; in fact, some of them are even FHA-backed. On the other hand, some are in fact frauds. Let's look into the reality of reverse mortgages.
How Do Reverse Mortgages Work?
It goes without saying that times are hard and prices are rising. This can make it harder for older homeowners to stick to their budget or cover unplanned expenses, especially if their primary monthly income comes from Social Security and pension payments. Technically speaking, their house contains the majority of their assets. Sadly, the assets are useless for covering expenses.
Reverse mortgages are made to address this issue. In essence, they give you the option to borrow a specific sum secured by the equity in your property. A line of credit, monthly payments, other term payments, a flat sum, or a mix of these can be used to pay for this. In contrast to other loans, equity-based loans do not need you to make ongoing payments to the lender while you are still the home's owner. When you vacate the property, you must repay the debt (i.e. you move or sell the house).
Do reverse mortgages include fraud?
Some can be; be cautious of unsolicited reverse loans provided by builders, realtors, and home flippers. However, Home Equity Conversion Mortgages (HECMs) make up the majority of reverse mortgages (HECMs). You must utilise a lender that has been approved by the Federal Housing Administration (FHA) in order to use these.
4 Reverse Mortgage Facts You Should Know
There are additional HECM-related facts to be aware of in addition to the age restriction:
You must live in the home you are mortgaging as your principal residence. Although you don't have to own it fully, you do require a sizeable amount of equity.
Financial guidance is essential. Before obtaining a reverse mortgage that is FHA-approved, you must meet with financial advisers to make sure you are aware of all the terms and conditions of this loan type.
Charges apply. No such thing as free money exists. You should prepare to pay loan origination fees, upfront and continuing mortgage insurance payments, as well as the interest you will be charged for your reverse mortgage. These may be rolled into your loan balance and become due after you stop living in the home, depending on your agreement with the lender. However, ultimately you will have to pay them.
Although there are no monthly payments, you still run the risk of going into foreclosure. Your home may be foreclosed upon if you violate the conditions of your mortgage arrangement (often by failing to pay property taxes, substantially falling behind on home maintenance, or moving out of your home permanently).