Top 8 Factors To Consider Before Taking Out a Reverse Mortgage
Reverse mortgage can be an excellent retirement tool for many homeowners aged 62 and above. It allows you to borrow cash against the equity that you may have built up on your home. It can supplement your income and allow you to remain in your home as long as possible. However, there are many things you need to consider before taking out a reverse mortgage.
The amount that you get
The amount that you can get as a reverse mortgage depends on the kind of equity you have built up on your home. To find out how much you’re eligible to borrow, it is a good idea to have your home appraised. See if the amount suffices your requirements and then take your decision. Michael (Mich) Sneddon The good thing, however, is that you will still have the title to your home for as long as you stay in it. Nevertheless, you will have to pay up your property taxes, homeowners insurance, and other charges to maintain your home, regularly.
Payment options
You have many options when it comes to reverse mortgage funds. You can get it as a lump sum, a monthly payment, or a line of credit. These options can be combined. Before deciding on the best option, you should consider your individual situation. You may prefer a lump sum if you have a large, one-time expense. You will need to select the monthly payment option if the money is needed for regular living expenses. In case you need the money only for emergencies or additional expenses, you can think about going for a line of credit.
Legislations
HUD keeps changing the rules for reverse mortgage every now and then. They may not affect existing borrowers. But as a senior homeowner who is thinking about taking out a reverse mortgage you may have to keep yourself aware of all these rules and regulations. The latest information states that HECM borrowers will now have to pay a mortgage insurance premium equal to 2% of their maximum loan amount, instead of 0.5% previously. This is regardless of how much amount you draw up front. However, the annual MIP of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. The borrowing limits have also been reduced when compared to what they were previously.
Fees
There are many initial expenses associated with reverse mortgages such as loan origination fee, appraisal fee, mortgage insurance premium, and closing costs. They may come up to 3 to 4% of the loan amount and are generally financed into the loan. Other than these fees, the lender may also charge loan servicing fees. Reverse mortgage lenders might get in touch with potential clients via reverse mortgage leads. Before you sign an agreement with anyone, reverse mortgage make sure to check with them all about the fees.
Repayment plan
Reverse mortgages are not like traditional mortgages. They do not require that monthly payments be made. Reverse mortgages are only repayable if you die or move out of your primary residence. If you plan to move away from your home in five years, this is something you should not do. You will not be able repay the closing costs you have incurred on the reverse mortgage you borrowed.
Family opinion
Before you apply for a reverse mortgage, it is important to talk with your family. Your heirs might want to keep your home after your death. In most cases, the borrowers use up the entire equity when they take out reverse mortgages. And once the borrower passes away the home will have to sold off to pay back the loan. The family will need to find alternative financing options to repay the mortgage if they want to keep the house. Before you apply for a mortgage, find out what your family would like to do with the home.
Use
How you use the reverse mortgage will determine if you would benefit from taking one out. There are no restrictions as to how your mortgage amount can be used. You can use it for your ongoing living expenses, go for a family trip, or cover your kitchen renovation costs. You will need to have a plan in place before you can get the cash. Your age also matters when it comes to using the funds from this kind of mortgage. You may avoid excessive spending if you’re still in your 60s.
Alternate options
If you have limited financial resources or your family does not want to inherit your home, this will work for your. You may be able to see the bigger picture and find other options. See if you have any other income or assets to sell. You may sell your home to your children, sell your home, refinance your existing mortgage or even decide to downsize and start living in a retirement community.
