As the popularity of reverse mortgages increases, so too does the importance of making sure you understand both the changes that occur with reverse mortgages on a regular basis as well as how exactly reverse mortgages even work.
These lending options are very new, and as with all new financial options, they are not well understood by the public. Here are a variety of pieces of news, facts and statistics about reverse mortgages that may be useful to you as you consider these as a possible option for you.
Information on Reverse Mortgages
- You will not lose either your social security or Medicaid if you decide to go with a reverse mortgage. However, it should be noted that if you receive a lump sum of money and keep it in your savings account above the maximum threshold (currently $2000), you will have to market it as an asset, which can cause you to lose your Medicaid. If you spend it before the month is over, it will not affect your Medicaid.
- The Federal Housing Authority has increased the maximum amount of reverse mortgages to $625,000. This means that the largest loan you can receive is $625,000, even if your home is worth more in total equity.
- Reverse mortgages do not come with any prepayment penalty. At any time, should you decide you want to pay back the entirety of the loan and have the means to do so, you can pay it back without incurring any fees.
- Repayment can never exceed the value of the home. If the home sells for less than the value of the loan, no additional money is owed regardless of whether the loan has an outstanding balance. Lenders also are not allowed to expect any payments from family members outside of those that received the reverse mortgage.
- Provided the recipient of a reversed mortgage is alive and living in the home they have reverse mortgaged, the lender cannot come to collect fees under any circumstances. Only upon passing is the lender allowed to request fees.
- The older you are, the greater your reverse mortgage tenure payments will be.
- Reverse mortgages can be used to pay for any expenses. They can be used for home repair, vacations, gifts, insurance, debt relief, and even on food and groceries. Reverse mortgage loans are designed to give you cash that can be used for any legal activity or item.
- These loans are not nearly as viable an option if you expect to not be living in your home 2 to 3 years after the date of receiving the loan. The fees are such that the value of the loan goes down dramatically when it is only used in the short term. These loans are far more useful when you plan on staying in your home the rest of your life and do not plan on giving the home to your family members upon your passing.
- Reverse mortgage financial counselors are not the same as psychological counselors. There have been recent reports of judges that have been cancelling reverse mortgage loans after competency was not proven. As such, it is a good idea to apply for these loans with a family member to ensure that everyone understands these loans and options.
Also, do not forget the value of the mandatory session with the financial counselor. Their job is to answer any questions you may have about your finances, your reverse mortgage, your alternative options and the likelihood that these loans will meet your needs. Again, these counselors are mandatory, so it is within your best interests to use them for all of their knowledge and to try to find out all you can about these loans and options.
Follow the News on Reverse Mortgages
Reverse mortgages are the newest type of loans, and as such as still going through many changes. It is within your best interests to stay informed of all of these changes and make sure that you are receiving the right information to help you make a good decision. Reverse mortgages may be right for you, but make sure you know all there is to know about them before coming to that conclusion.
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One of the newest lending trends across the United States it that of the reverse mortgage. A reverse mortgage is perhaps one of the most unique types of lending. It is designed specifically for seniors, and it is a way to make money off of one’s property before they pass on. Unlike most mortgages, reverse mortgages are designed for current homeowners, and have a variety of benefits and repercussions that are unique to this type of loan.
What Are Reverse Mortgages?
For seniors over the age of 62, reverse mortgages represent a way for the senior to earn money for simply living in and owning their home. Unlike with traditional mortgages, credit and income are irrelevant to whether or not you quality for a reverse mortgage. All that matters is that you are a current homeowner.
Reverse mortgages give you money for the equity of your home, but do not require a monthly payment the way that standard mortgages do. In fact, reverse mortgages pay you – providing you with monthly payments as the equity in your home grows.
How is it Paid Back?
As long as you are alive and living in your home, there are no payments necessary. The way that payment occurs is that because the loan is based off of the equity in your home, once you pass on or sell the home, the proceeds from that sale will go to pay the loan back.
How Much Can You Get?
Reverse mortgages are only provided to seniors – the reason is it that it is assumed that eventually the senior will leave/sell the home or pass away, and the funds can be recouped. As a result, some of how much you can get is based on your age (the older you are, the larger your monthly payments), the value of your home, interest rates and current lending limits.
What’s the Catch?
There is no catch when it comes to reverse mortgages. The best way to think of them is as a way of temporarily renting/selling your home to the bank while you still live in it. The only true catch is that your estate will no longer belong to you, so that if you had planned to leave it to your loved ones after your passing, it will no longer be in your control, and will instead be owned by the bank. There are also a number of fees associated with getting a reverse mortgage, so one should be financially prepared before deciding whether it is right for you.
How Do You Get It?
There are a number of companies now that are able to provide reverse mortgages for those that need them. Banks and government programs also provide the option as well, as the idea for a reverse mortgage was created by the Federal Housing Authority. However, in addition to the application, you will also need to receive what’s known as “Financial Counseling.” The counseling is designed to make sure that you fully understand the implications of you receiving this type of loan, and that you understand what it means to your finances, your estate, and your heirs.
What Are Reverse Mortgage Qualifications?
There are several different qualifications for receiving a reverse mortgage. These include:
- You are 62 years of age or older.
- Your mortgage balance is low (or more preferably non-existent).
- You do not have bankruptcy.
- You do not live in a mobile home (with some exceptions).
- You do not live in a shared residence.
- You live in the property and it is a single property household.
As you will note, your credit score, finances, etc. are irrelevant when it comes to getting a reverse mortgage. All that matters is the criteria listed above.
Is a Reverse Mortgage Right for You?
Reverse mortgages are tricky. There are plenty of benefits for those receiving a fixed income, especially those that plan on living in their home for years and do not intend to leave their homes to anyone else. Still, there are a number of fees, some risks, and a variety of complicated methods that some companies try to give reverse mortgages. If you own a home and need that extra income, reverse mortgages can be incredibly useful, but be sure and ask a variety of questions to the financial counselor as these loans can be confusing to understand and are not right for everyone.
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Though reverse mortgages have stormed onto the scene in recent years, they are still prone to misunderstanding, miscommunication, and misinformation that results in loans that are not ideal given your financial situation.
Reverse mortgages are a type of loan that you should only get once. That is why it is always a good idea to follow the tips below for helping you secure the best reverse mortgage to meet your specific goals.
Tips for Reverse Mortgages
- Bring Everything to Your Financial Consultant
By law, you must meet with a financial consultant to discuss these loans and whether or not they are right for you. This is something you should do your best to take advantage of, as these consultants represent unbiased third parties that have no incentive to try to convince you to get a loan you do not need. As such, they are the ideal source for information – knowledgeable about the entire reverse mortgage system without profiting from your ability to get these loans.
Bring information on loans you were considering, information on your current financial status, and as many questions as you can possibly think of to your reverse mortgage counselor so that you can be absolutely sure that you know all there is to know about the loans before you choose to partake in them.
- Don’t Get a Reverse Mortgage if You Don’t Plan on Staying in Your Home
Reverse mortgages are useful, but they are also pricy up front. There are a variety of fees that you may incur as you try to get these loans, including covering the costs of getting your home appraised, working with financial counselor, and a variety of other lending costs that may easily affect the usefulness of the loan. If you plan on staying in the home for only a few years before selling it, consider getting a different type of loan instead.
- Consider Using the Reverse Mortgage to Pay Off an Existing Mortgage
Though it is not ideal for everyone, in some cases (based on your yearly income and loan qualifications), you may find that your only option with a reverse mortgage is to cover the costs of your current mortgage (with no money left over). Though you will not be receiving any monthly income when this occurs, you will be SAVING considerable amounts of money due to no longer having to pay off your mortgage, and it will still be quite useful. Talk to your financial planner to be sure this works for you.
- Consider a Variety of Options
Reverse mortgages come in many different forms. You can get a lump sum equal to the amount of your mortgage you qualify for. You can get a line of credit – which allows you to only use your reverse mortgage when you need it. And you can get monthly payments, which are a preferable option for many people that are budgeting with their reverse mortgage. You can even combine these options depending on what is best for your current financial situation. Make sure you have considered all of the options before selecting one.
- Find Out Tax Information
There are a variety of tax laws meant to assist those that receive a reverse mortgage by saving them even more money. Interest on reverse mortgages may be tax deductable, and there are a variety of additional tax laws that are changing daily in order to accommodate seniors that choose to go with one of these reverse mortgage loans. Make sure you fully understand all of your tax laws and rights, and be sure and bring these questions up with your financial counselor.
Securing the Best Reverse Loan
Reverse mortgages are unique, in that they are the only loan currently available that pays you money without the need for monthly repayments. But like all loans they have a variety of different features and options that can be confusing at times. That is why it is always a good idea to talk over all of your lending questions with a financial planner, in order to be absolutely sure that you are making the best decision when it comes to both your home and your equity.
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