Home Equity Conversion Mortgages
A reverse mortgage is offered for older homeowners aged 62 and above where they get a loan against their home's equity. You don't have to pay the lender any monthly mortgage fee but the last surviving heir will repay the loan. In effect the lender pays you the equity for your home, tax free, much like a down payment and you don't have to pay him during your lifetime. When you die, if your spouse decides to sell the house, it is only then that the principal and the interests are paid.
How does a reverse mortgage work? Reverse mortgages may be single purpose reverse mortgages, propriety reverse mortgages or home equity conversion mortgages.
Single purpose reverse mortgages are typically inexpensive and are offered only for the sole purpose defined by the lender such as home improvement, repairs or to pay real property taxes.
Propriety reverse mortgages are private loans that depend on the value of your property. If your home is valued higher, then you can avail of a much higher loan. To learn more about mortgages, you can visit https://www.youtube.com/watch?v=C5a4aHPKDJI.
Home equity conversion mortgages are offered by the federal government and maybe used for any purpose.
Is a reverse mortgage the right choice for you? Before applying for a reverse mortgage, you need to consult with a counselor and not listen to a salesperson. The counselor can explain the extra costs and implications of a reverse mortgage. The salesperson often offers reverse mortgage as the ultimate solution to your problems. Do not rush through the process, try to shop around and understand fully the cost and features of reverse mortgage. If the sales person pressures you to a deal, walk away.
There are risks and dangers with reverse mortgage. The applicant of the reverse mortgage line of credit is an elderly person and it is alright as long as she/he stays in the house, but what if he/she be taken to care facility, all other household family members or relatives must also leave because according to reverse mortgage laws, they become tenants.
Homes on reverse mortgages must be maintained with all taxes paid and the house insured. Failure to do so will render the lender in default and the company can very well foreclose the property and sell it to a much higher price.
If the elder dies, the heirs can only stay in the home when the principal, service fees and accrued interests have been paid. Simply put, say good bye to your inheritance.
You must therefore consider reverse mortgage as the only option when all other options fail.
Even up to the last minute you are still protected from an impulsive decision. Have you heard of your right to "rescission"? If you have culminated your reverse mortgage but had second thoughts about it, you have 3 days to cancel the agreement without any penalty. There might be smarter, less costlier ways of dealing with dwindling funds.