10 things you wanted to know about reverse mortgages
Reverse mortgages are popular at the moment and with good reason as it is one of the best ways for seniors to tap into equity they built up in their homes. In some cases, this might be the only significant source of funds that many seniors have available to them for retirement. However, there are a number of questions that people have about these loans and this article takes a look at some of the common FAQ’s and some other considerations. With that in mind, here are 10 things you wanted to know about reverse mortgages.
1. Why is it Called a Reverse Mortgage?
Unlike traditional mortgages, reverse mortgages do not require borrowers to make monthly interest and principal payments. Instead, borrowers tap into the equity they have built up in their home to use for other purposes.
Now there is a catch. These loans are not available to everyone. To qualify you will need to be at least 62-years-old and be able to prove that you can cover the cost of homeowner’s insurance, property taxes, and utilities.
2. What Happens to the Title?
Translation: will you still own your home. The answer is yes. You and your spouse will continue to own your home. The only difference will be that the lender who wrote your reverse mortgage will now have a lien on the property. This is the same thing which happens when you have a traditional mortgage but you are still the owner of the property.
3. Why Chose a Reverse Mortgage?
People are living longer and today’s seniors have had to struggle through the twin financial crises of the dot-com bust and the great recession. As such, many seniors lack the savings needed to enjoy their retirement.
Enter the reverse mortgage. Not only can you pause your monthly mortgage payments, but you can also tap into the equity you’ve built up in your home after years of paying the bank.
4. How Can You Qualify?
As previously mentioned, you must be over the age of 62. In addition, you have to document the ability to pay items such as property taxes, utilities, and homeowner’s insurance. The property under consideration must be your primary residence and you will need to talk to a counselor before being approved for the loan.
5. Are Reverse Mortgages Risky?
These loans are insured by the Federal Housing Administration (FHA). This means that they are not only safe but that someone is looking out to make sure that seniors are not being preyed on by unscrupulous lenders.
6. What Are the Eligible Properties?
Among the eligible properties include single-family homes, multi-family homes (up to four units and the borrower must live in one of the units), approved condos and manufactured homes if they meet the FHA’s requirements.
7. What is the Loan Limit?
While this depends on where you live the lending limit was raised to $636,150 at the start of this year. That being said, the actual amount you can ‘borrow’ under a reverse mortgage will depend on the value of your home and how much you owe on your current mortgage.
8. Do I Run the Risk of Foreclosure?
If you follow the requirements of the loan, then you won’t have to worry about being foreclosed. These include keeping the home as your primary residence and remaining current on your taxes, insurance, and utility bills. In addition, the home will have to remain in good repair but if you follow the conditions of the loan you won’t need to worry about going into default.
9. Which Lender Should I Choose?
If you are not sure who to contact for a reverse mortgage then check out the National Reverse Mortgage Lenders Association (NRMLA). This handy tool will help you to identify qualified lenders in your state who meet the ethical standards of the NRMLA.
10. How Do I Repay a Reverse Mortgage?
In most cases, the loan will come due when you sell or move out of your home. Given that these loans are only for seniors, this means that you have chosen to move into a smaller home or an assisted living facility. Either way, the bank will notify you about the requirements for repayment of the loan at that time. This could include sale of the property or some other mechanism to pay off the loan.