Top 8 Factors to Consider Before Taking Out a Reverse Mortgage

Top 8 Factors to Consider Before Taking Out a Reverse Mortgage

A reverse mortgage can be an excellent retirement tool for many homeowners age 62 and older. It allows you to borrow money against the equity you may have built up in your home. In addition to supplementing your income, it also allows you to stay in your home for as long as you wish. However, there are many things to consider before taking out a reverse mortgage.

The amount you receive
The amount you can get as a reverse mortgage depends on the type of equity you have built up in your home. If possible, you can have the home appraised to find out how much you are eligible to borrow. See if the amount meets your requirements and then make your decision. The good thing, though, is that you’ll still have title to your home as long as you stay in it. However, you will need to regularly pay your property taxes, homeowners insurance, and other fees to maintain your home.

Payment methods
When it comes to getting funds from a reverse mortgage, you can choose from a variety of options. You can get it as a lump sum, monthly payment or line of credit. You can also try a combination of them. Consider your personal situation before choosing the right option. If you have a large one-off expense to cover, you can ask for a lump sum. However, if you need the money for your regular living expenses, you will need to choose the monthly payment option. In case you only need money for emergencies or extra expenses, you can consider a line of credit.

Legislations
HUD continues to change the reverse mortgage rules from time to time. They may not affect existing borrowers. But as a senior homeowner considering a reverse mortgage, you may need to be aware of all these rules and regulations. Under the latter, HECM borrowers will now have to pay an initial mortgage insurance premium of 2% of their maximum loan amount instead of the 0.5% they previously paid. This is regardless of how much you withdraw in advance. However, the annual MIP of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. Loan limits have also been reduced compared to the past.

Taxis
There are many upfront costs associated with reverse mortgages such as loan origination fee, appraisal fee, mortgage insurance premium and closing costs. They can be as high as 3 to 4% of the loan amount and are usually financed into the loan. Apart from these, the lender may also charge some loan servicing fees. Many reverse mortgage lenders can contact you through reverse mortgage customers. Check with all of them about the fees involved before signing an agreement with any of them.

Repayment schedule
Unlike a traditional mortgage, reverse mortgages do not require monthly payments. They only become payable after you die or move from your main residence. This is not an option you should consider if you are thinking of moving out of your home in five years. If you do, you won’t be able to recoup the closing costs you pay against the reverse mortgage you borrowed.

Family opinion
Talking to your family members is very important before taking out a reverse mortgage. Your heirs may want to keep your home after you die. In most cases, borrowers use up all of their equity when they take out reverse mortgages. And after the borrower dies, the home will have to be sold to repay the loan. If family members want to keep the home, they will need to arrange alternative ways of financing to pay off the mortgage. Find out what your family members would like to do with your home before you take out your mortgage.

Use it
How you use a reverse mortgage will determine whether you will benefit from taking one out. There are no restrictions on how you use the mortgage amount. You can use it for your current living expenses, go on a family trip or cover your kitchen renovation costs. However, you will need a plan before you get the money. Your age also matters when it comes to using the funds from this type of mortgage. For example, if you are still in your early 60s, you may want to avoid unnecessary expenses so that you don’t run out of funds later on.

Alternative options
It will work for you if you don’t have the financial resources and if your family members have no interest in keeping or inheriting your home. However, if you try to see the bigger picture, you may find many other options. See if you have 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.

A reverse mortgage is available to all homeowners who are age 62 or older. However, it may not suit everyone’s requirements. You will need to find out if this is the right option for you before you decide to take out a loan. Make sure you are aware of fees and legislation and have a defined usage and repayment plan. Also look for alternative options that fit your needs better than a reverse mortgage can.
This mortgage is a lifetime solution that can help you lead your retired life in peace and comfort. However, you may want to make sure it’s the right decision before you say “Yes” to any of the mortgage lenders who come to you through live mortgage contacts.

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