A Quick Guide to Reverse Mortgages
Reverse mortgages can be a great way for seniors to pay for extra expenses and stay in their homes. However, if you don’t fully understand how they work, you could be setting yourself up for some big expenses and a lot of confusion down the road.
A reverse mortgage is, at its very essence, a loan on the equity of your home. If your home is worth $200,000, for example, a reverse mortgage could be set up so that you would be getting regular payments based on your age, value of the home, and the current mortgage interest rates. You may also be able to get a line of credit based on the available amount or a lump sum payment. A combination of the three may also be possible.
As long as you live in the home, you don’t have to pay back the payments from the bank. However, if you move out, the total amount owed (including interest) becomes due. This is usually paid off with the proceeds of the sale. Depending on the amount of payments you have received, this should leave you with enough from the sale to live on.
If you stay in the home until the time of your death, it will be your heirs’ responsibility to pay back the bank. This is usually done with the proceeds from the sale of the home. The bank will not transfer the deed until the total amount has been paid back. Any remaining money from the sale would go to the heirs specified in your will.
If you want to stay in your own home for as long as you are physically able to do so, but you’re having financial difficulty meeting your needs, a reverse mortgage may be an option worth looking into. It allows you to benefit from the equity you have built up after years of mortgage payments.
However, if one of your heirs are interested in remaining in your home after you are gone, and if that is what you want, too, a reverse mortgage may make the transference a lot more of a challenge. Your heir will have to buy the home back from the bank at the time of your death.
To be eligible for a reverse mortgage, you must be at least 62 years old, and the owner of the home. It has to be your primary residence, meaning that you live there for at least six months out of each year. The origination fee and other costs of the loan are high, and you are responsible for all of them. There are also additional fees when you or your family pay off the loan later on. Also, if you depend on Medicare or other assistance programs that are based on income, you need to consider how this additional income may affect whether or not you qualify for these programs.
You will probably have to attend a counseling session through HUD (US Department of Housing and Urban Affairs) before you can get a reverse mortgage. This will help you to understand all of the specifics of a reverse mortgage, and whether or not it is the best solution to meet your needs.