5 Things to Consider Before Taking Out a Reverse Mortgage
During the 2013 fiscal year, homeowners established 60,091 Home Equity Conversion Mortgages (HECMs). Backed by the U.S. Department of Housing and Urban Development (HUD), HECMs are the most common form of reverse mortgage in the U.S. today. Unlike a traditional mortgage that requires a homeowner to make monthly payments to a lender, the reverse mortgage makes it so the lender pays the homeowner — either in installment payments, as a lump sum or line of credit, or as some combination of a lump sum and installment payments. The amount you receive depends on a factors including your age (the youngest homeowner’s age), the value of your home, and interest rates.
Ken Terrill of Reverse Mortgage Experts has been in the business of reverse mortgage lending for over twenty years. Terrill says reverse mortgage candidates are sometimes “widows and divorcees who can’t afford to pay their house payments. … Some people want to help their kids, help their grandkids with college, there are infinite uses.” Homeowners “over 62 who need an increase in income (and have a) qualifying property” are generally eligible, he says.
The process of obtaining a reverse mortgage comes at little or no out-of-pocket costs as closing costs and other fees can be deducted from the loan. The homeowner, or homeowners, must attend government-approved counseling to ensure they understand the reverse mortgage. “Counseling is about an hour long and the counselor talks about different options, risks, and uses,” Terrill says.
A brief overview of the reverse mortgage process and the benefits that come along with this type of loan make it sound like an ideal option for anyone who qualifies. Although the program is beneficial to many people, there are some pitfalls to the reverse mortgage. Here is some information you may want to consider when determining whether or not a reverse mortgage is the right path for you.