Is reverse mortgage loans the best option for you if you're a senior citizen homeowner in need of some emergency funds? Both the benefits and drawbacks of the reverse mortgage are discussed.
If you turn on the TV during the day, you will most likely see a commercial that asks some variation of, “Do you own your own home? Are you 62 or older? Do you want to increase your salary? Therefore, you should consider a reverse mortgage loan. If you need money, the bank will give it to you without any effort on your part. You can keep your home and still be a homeowner!
For this reason, reverse mortgages may appear to be too good to be true, or even a scam. However, reverse mortgages are not all scams; in fact, the Federal Housing Administration (FHA) insures some of them. On the other hand, some of them really are fraudulent. Let's go into the facts of reverse mortgages and see what we find.
The Definition of a Reverse Mortgage
Everyone knows that costs are rising and money is scarce. This can exacerbate the difficulty for retiree homeowners already having to rely on Social Security and pension payments as their primary monthly income in order to maintain a comfortable lifestyle and cover unexpected expenses. Their primary residence serves as the primary safe-haven for their personal belongings. Those assets are unfortunately useless in terms of meeting financial obligations.
A reverse mortgage can help with this problem. They let you to borrow a predetermined sum against the value of your home as collateral. This can be paid for in a variety of ways, including all at once, over time, in instalments, as a line of credit, or any combination of these. You keep your home and don't have to make monthly payments to the lender if you take out a home equity line of credit, just like with other equity-based loans. When you move out of the home, you repay the loan (i.e. you move or sell the house).
Is Getting a Mortgage When You're a Senior a Scam?
Be wary of unsolicited offers of a reverse mortgage from strangers such as handymen, estate agents, and home flippers. Home equity conversion mortgages, or HECMs, make up the vast majority of reverse mortgages (HECMs). You must work with a lender that has been approved by the Federal Housing Administration (FHA) in order to get one of these loans.
Here Are Four Facts to Keep in Mind About These Loans
Additional information regarding HECMs, beyond the minimum age requirement:
Your primary residence must be located in the property being mortgaged. You don't have to have full ownership, but you should have a lot of equity in the property.
Needed immediately: professional financial guidance. You should talk to some financial advisors before applying for an FHA-insured reverse mortgage to be sure you know what you're getting into.
Costs are involved. Money cannot be created out of thin air. You should budget for loan origination fees, as well as initial and periodic mortgage insurance premiums, when considering the total cost of your reverse mortgage. These may be included in your loan amount and become due upon sale of the property, depending on your terms with the lender. However, you will have to make good on your debt to them.
Even if you stop making your monthly payments, you could still lose your home to foreclosure. Foreclosure is the legal process through which a mortgaged property is taken back by the lender when the borrower fails to fulfil their obligations under the mortgage contract.
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