A reverse mortgage allows seniors 62 and over to borrow part of the capital in their home to replenish their income while maintaining the title in their home. The borrower receives money, either in a large amount or as needed, by the lender instead of the payments. At first glance, this looks like a good deal. However, there is much more to know before you try this out. Here's what you need to know before you use the equity of your home to help survive.
The Reverse Mortgage Industry
Ten years ago, the reverse mortgage industry was well-known for the predatory lenders, who benefited from the desire of the elderly to stay at home. Recently, however, the industry has gained some respect.
"In the past, borrowers did not need to qualify for a reverse mortgage, so the product drew more than just a borrower of the recent vehicle," says Tim Nelson, a reverse mortgage banker and certified Reverse Mortgage Professional (VIP). Mortgages in Scottsdale, Arizona. "People now have to qualify, so the product has improved, so we get a much higher quality of the borrower." According to Nelson, a reverse mortgage may be part of a long-term financial strategy. For example, one of Nelson's clients lost his job at the age of 64 and did not want to seek a much lower amount of social insurance claiming early. "He used the reverse mortgage money until he reached the age of social security, then stopped the reverse mortgages and began collecting all of his social security income." Says Nelson.
A reverse mortgage may also allows seniors to avoid distributions from the retirement portfolio during a bear market. "When the market comes back, stop the reverse mortgage and resume portfolio allocations," says Nelson. "Making money from a portfolio in a bear market at the beginning of retirement is one of the biggest risks for the retirement life expectancy."
Nelson, who provides courses on continuing education on reverse mortgages for certified financial planners, says more than half of financial planners attending his lessons are initially cautious of reverse mortgages.
How does a reverse mortgage work
Almost all reverse mortgages are dominant mortgage loans (HECMs), provided by the Federal Housing Administration (FHA) and supported by the US Department of Housing and Urban Development (HUD). To qualify for these, a senior will have to meet the following qualifications.
- Be at least 62 years of age
- Have enough money to cover taxes for property and current insurance
- Maintain your home as your main residence
Ten years ago, almost anyone could get a reverse mortgage, which resulted in many exemptions from insurance taxes or unpaid real estate. Nowadays, you need to meet an adviser from a government agency that is independent and approved before you can apply for a HECM.
The counselor compares the costs of different variations of reverse mortgages and explains how the payment costs, fees, interests, and options affect each loan over time. The consultant should also suggest possible alternatives, such as government and nonprofit programs. "The biggest cost is usually the initial mortgage insurance, which represents 2% of house value," Nelson said. Other costs include closing costs, credit origin fees, and mortgage insurance.
Lenders also need to carry out a financial assessment of your ability to meet your loan obligations. The amount you can borrow depends on your age, interest rate and the value of your home. As a general rule, you are allowed to get up to 60% of your initial limit in the first year. You will need to choose one of four ways to get your money:
Credit Line: Allows you to withdraw your credit income at any time, depending on the amount you choose until you have used your margin.
Single Disbursement: Only available with a Fixed Rate Loan and generally offers less money than other HECM options.
Content: Monthly cash forecasts, as long as you live at home.
Duration: fixed monthly installment in cash for a specified period.
The money you get is tax-free. You or your property should pay the loan when the borrower:
- Allows the house to collapse
- Does not pay property taxes, insurance premiums, condominium fees or other mandatory obligations and options for updating the loan is exhausted.
- Passed away
- Resides outside the main residence for more than 12 consecutive months due to illness
- Sells the house or passes the title to someone else
When it is time to pay, the lender can not be set to go and return your home. HUD adjustment allows the borrower or property for at least six months to sell the house to repay the loan. If there is a deficit, the borrower is not responsible for this amount, which is paid by FHA and HUD.
Consider the Alternatives
According to Mark Gianno, Certified Financial Planner and President of Gianno & Freda, Tax Accounting and Financial Planning Officer at Hyannis, Mass., Seniors should take the time to consider alternatives before embarking on an overturned mortgage in the home them. The reverse mortgage "should be the ultimate tool," he says. Like any loan, credit reverse mortgages carry fees, commissions, closing costs and interest. For example, a $ 100,000 loan with a 5% interest rate would increase to $ 105,000 in the first year. In addition, unlike a regular mortgage, this interest of $ 5,000 is not a deductible tax. So while you get the money to fill your income, the balance of the reverse mortgages continues to grow.
According to Gianno, another reverse mortgage decline implies the upward rise in the basic real estate value, which translates into an increase in property taxes based on an increase in property values. If the borrower is not able to pay these higher taxes, the loan becomes compulsory.
An opposing mortgage may be part of a global plan if someone feels financially sad, says Gianno. However, he recommends selling your home and using money as you please. Or sell your home to one of your adult children who can allow you to stay home.
Your children can also create a credit facility by paying money through a company like National Family Mortgage, which offers home mortgages, including a private mortgage loan. "The credit line that offers the features and benefits of a traditional reverse mortgage with no high costs and constraints.
A reverse mortgage: is it good for you?
The National Association of Mortgage Lenders (NRMLA) is a good source of information. Provides a reverse mortgage calculator, a reverse mortgage guide and a reverse mortgage estimate that provides a detailed estimate of total costs and fees based on your situation. For more information, see the Federal Information Trade Commission (FTC) customer information page on reverse mortgages.
If you are worried about the financial and emotional uncertainties of retirement, then consider visiting a senior living community at one of our numerous Landmark Senior Living locations! At our senior living communities, we offer programs and services designed to enlighten and engage all residents. If you or someone you love is considering a senior living facility, take the first step today and reach out to our passionate staff at Landmark Senior Living.