April 21st, 2019 7:37 AM by Jackie A. Graves, President
The vast majority of older American?s want to remain in their
homes as they grow older, also known as aging in place. There are a number of
costs to consider when aging in place including home modifications,
transportation and in-home medical care. One way to pay for these costs and
stay in your home is a reverse mortgage. If you’re considering a reverse
mortgage, the American Bankers Association encourages you to understand what it
is and weigh the pros and cons.
Mortgage – A reverse mortgage is a type of loan that allows you to
borrow against the equity in your home. You must be at least 62 years-old to
This is the value of your home minus debt against it.
Homeowner – With a reverse mortgage,
you are still a homeowner and still responsible for paying property taxes,
insurance and upkeep.
Repayment – When the loan is over,
you or your heirs must repay cash received from the loan plus interest. The
reverse mortgage loan becomes due when the borrower dies, sells the home or
moves out of the home. The lender may also require repayment if you fail to pay
your property taxes, fail to keep your home insured or fail maintain your home.
Be sure to read the terms of the agreement closely before signing.
Fees – Just like with any
other mortgage product, there will be fees to close the loan. Lenders may allow
you to pay the fees using your reverse mortgage. They are added on to the
balance of your loan and must be repaid with interest when the loan is due.
Annual Loan Cost – Because different reverse mortgage products can vary, it
can be difficult to compare prices and choose the best one for you. Ask your
lender for the Total Annual Loan Cost, a single annual average rate, to help
compare various reverse mortgage products.
Co-Borrower – If you live with a
spouse or partner, it is highly recommended that you apply for the reverse
mortgage together as co-borrowers. Anyone living in the home who is not a
co-borrower will be required to pay the loan or move out when you move or die.
Options – The way you take cash from your reverse mortgage can vary. You
can opt for a line of credit to take cash only when you need it, a monthly
payout, or a single lump sum.
?Shop around. Be
sure to check with multiple lenders. You can use sites like www.reversemortage.org,
sponsored by the National Reverse Mortgage Lenders Association, to find lenders
in your area.
Understand your options. Be
sure to evaluate all the options you have including applying for a home equity
line of credit or home equity loan. Also consider selling your home.
Be cautious. If
someone is selling you something and suggests you use a reverse mortgage to pay
for it, consult a trusted advisor before signing anything.
Nothing is free. If
anyone suggests that a reverse mortgage is free money, don’t believe it. Fees
are built into the loan, which must be paid back with interest when it becomes
Know your rights. After
closing the loan on a reverse mortgage you have three business days to
reconsider your decision. If you choose to rescind the loan, you must do so in
Consider borrowing jointly. If
the reverse mortgage is in one person’s name and that person dies or leaves the
home, the loan will become due. If there are two people living in the home –
make sure you’re both on the loan or able to repay the loan – otherwise, you
may end up losing the property.
Consider your age. Be
cautious if a lender is suggesting you do this at an early age. Your debt will
begin to grow and equity will decrease as soon as you take out the reverse
mortgage. The longer you have the loan, the more it will cost.
Only take what you need. Carefully
consider your payout options. Keep in mind that if you take the full amount of
the loan in one lump sum, you will be charged full interest on the largest
possible loan amount.
Reverse Mortgage Lenders Association: www.reversemortage.org
Consumer Financial Protection Bureau: http://www.consumerfinance.gov/askcfpb/224/what-is-a-reverse-mortgage.html
Federal Trade Commission: http://www.consumer.ftc.gov/articles/0192-reverse-mortgages
U.S. Department of Housing and Urban Development: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome?
Source: To view the
original article click here