A Reverse Mortgage Is a Loan
It Rewinds Your Mortgage
A reverse mortgages is best for those who will stay in their home for the rest of their lives.
- With a reverse mortgage you borrow money — either a lump sum, monthly payments, or a line of credit — using the value of your home as collateral.
- Interest and loan fees add up while you live in your home.
- The bank is paid back when you move or die.
- Because what you get is a loan, the money you get is tax-free.
What You Could Get
- A line of credit that can be used as a reserve.
- A lump sum that can be used to pay off the mortgage, which cuts fixed expenses and the monthly income you need in retirement.
- Monthly payments for life, that provide an income you can’t outlive (though payments do NOT rise with inflation, and will buy less as prices rise.)
A Reverse Mortgage could be right for you
- If you stay in your house for the rest of your life (as you might have little home equity left should you move.)
- If you don’t need the home equity for emergencies or an inheritance.
- If you’ll be able to pay your taxes and insurance (as you could lose your house and have little or no home equity if you can’t.)
How Much You Can Get
The Older You Are The More You Can Get
If your home is worth $250,000, what you could get on a standard government-guaranteed HECM (Home Equity Conversion Mortgage) loan in October 2012:
|Loan or Line of Credit||Lifetime Income|
If you have a current mortgage, you must FIRST use any money you get to pay it off. But then you won’t have any more mortgage payments!
The lower the interest rate, the more you can get. Lenders will let you borrow more, using your house as collateral, because you will owe less interest when the house is sold.
CLICK HERE to see what you might get and the fees you might pay.
Reverse Mortgage Fees Include:
- Standard mortgage fees: an appraisal, legals fees, and the like.
- Origination Fee: to cover lender expenses: up to 2% of the value of your home up to $200,000, plus 1% of the balance, with a cap of $6,000.
- Mortgage Insurance: to insure that you get all promised payments and that the bank is repaid, even if your house sells for less than the balance owed: 2% of the value of your home up-front plus 1.25% added to the annual interest charge.
- The “HECM Saver” loan eliminates the 2% up-front fee in exchange for a lower loan amount.
- Reverse Mortgage Service Fee to cover projected servicing costs: can run several thousand dollars – now often waived.
Be Informed & Beware of Scams
Reverse Mortgages are New & Complicated
It’s easy to make mistakes, be misled, and lose a lot of money.
Be informed. For more information, a calculator & contact information for approved housing counselors, CLICK HERE for the Department of Housing and Urban Development website.
You MUST meet with a government-approved counselor to apply for a HECM loan. So make sure you benefit from the meeting. Make sure you understand:
- The costs, benefits, and financial implications of the different types of loans.
- Your alternatives, including special programs offered by local governments or nonprofit organizations.
- If you intend to repay the loan, consider a conventional home equity line of credit – they have much lower fees and interest rates.
Beware of Scams. Avoid anyone:
- Posing as a government agency or non-profit organization selling reverse mortgages.
- Pushing options, such as an investment or annuity, that requires careful consideration.
- Requiring payment for basic product information or advice.