The Basics of Reverse Mortgages
Are you a senior homeowner in need of greater cash flow? If so, you may have a way to use the equity you’ve built in your home without having to take out a second loan – or sell your property. It’s called a reverse mortgage, a unique type of loan that can be an excellent way to improve your overall financial picture.
The word “reverse” says it all: rather than making monthly mortgage payments, you receive them instead. The cash payments are tax free, and in most cases have no effect on your Social Security or Medicare benefits. You will never be forced out of your home, and the loan does not have to be repaid unless you move, sell the home, or die. The amount of money you may be able to borrow depends on your age (the older you are, the more you are generally able to receive), the reverse mortgage type, your home’s value, where your home is located, and current interest rates.
The basic requirements to qualify for a reverse mortgage are:
There are several types of reverse mortgages:
While reverse mortgages can be a great way to increase your cash flow, there are a few downsides to consider:
Know Before You Borrow
Deciding which type of reverse mortgage to pursue can be a challenge. Don’t be afraid to ask a lot of questions, including:
HECM and proprietary loans can seem quite similar, so if you are trying to decide between the two, request a side-by-side comparison from the lender or counselor.
You should not feel any sales pressure when inquiring about a reverse mortgage. Never make a decision before you are ready or if you feel you are being led into a product you don’t fully understand or need. If you change your mind after signing a reverse mortgage contract, you have at least three business days to cancel (in writing) for any reason and without penalty. Once the loan is canceled, the lender must return any financing fees you may have paid.
In most cases, the process of receiving a reverse mortgage is a positive experience. However, fraud does exist. If you suspect any illegal activity, file a complaint with your state Attorney General’s office or state banking regulatory agency, as well as the Federal Trade Commission: www.ftc.gov; 877-382-4357.
For more information about reverse mortgages, contact:
U. S. Department of Housing and Urban Development (HUD)