In the past few years, more and more older people have been getting reverse mortgages. Reverse mortgages have a lot of good things about them, but they also have some bad things. Make sure you know everything about a reverse mortgage before you get one.
First, you should know what a reverse mortgage is and how it works. Basically, this type of mortgage lets you turn some of your home's equity into cash without having to get an extra monthly bill or sell your home. With a reverse home mortgage, you get money for the equity in your home. Unlike a regular mortgage, you don't have to pay it back until you no longer live in your home. It should be clear that you will have to pay back the money, either when you sell your home, move to a new main residence, or die. This can be a good choice if you have a lot of equity in your home but are having trouble meeting your monthly financial obligations. Another benefit is that the money you get from a reverse mortgage is usually not taxed because you will have to pay it back. Also, depending on which lender you choose, there are usually no limits on how much money you can make.
To get a reverse mortgage, you have to follow certain rules. You have to be at least 62 years old and live in the house as your main home.
Reverse mortgages can be broken down into three main types. These mortgages are single-purpose reverse mortgages, Home Equity Conversion Mortgages (HECMs), which are reverse mortgages insured by the federal government, and proprietary reverse mortgages.
State and local government agencies, as well as some non-profits, offer reverse mortgages for a single purpose. One of the best things about this type of reverse mortgage is that the costs are usually not very high. Unfortunately, not everyone can get them because it depends on where you live. Also, the lender may have rules about what you can do with the loan money. Property taxes and home repairs and improvements are two of the most common uses. This type of loan may also have limits on how much money you can make. This means that you can't qualify if you make more than a certain amount.
Most of the time, a HECM will cost more than a single-use mortgage, and those costs will usually be due up front. On the other hand, they are easier to get and often don't have any income requirements. Also, there are no limits on what you can use it for. Because HECMs are backed by HUD, you will have to meet with a counsellor from a housing counselling agency who will tell you everything you need to know about the loan. How much you can borrow with a HECM depends on your age, the value of your home, where you live, and the interest rates at the time. This kind of loan can be very flexible, giving you options like a line of credit or fixed monthly payments.
Because private loan companies back proprietary reverse mortgages, the options for this type of loan can vary. Most of the time, this type of loan will cost more than a HECM.
