One of the most popular financial tools for seniors right now is the reverse mortgage. While this type of mortgage can be beneficial in some cases, it is important to carefully consider your options since it isn’t for everyone.
Here are 10 things that you should know about reverse mortgages.
1. A reverse mortgage is a type of loan. You are borrowing money, so there are interest charges and other fees that will need to be paid.
2. You must be at least 62 years old for a reverse mortgage loan approved by the FHA (Federal Housing Administration), also called the Home Equity Conversion Mortgage (HECM).
3. You must be living in the home that’s being used to secure the reverse mortgage. Once you move out of the home, or if you pass away, the reverse mortgage will be repaid (usually with proceeds from the home’s sale).
4. Your income level and credit score are not important when it comes to obtaining a reverse mortgage loan. What’s important is your age and how much equity is in your home.
5. There may be limits to how much you can borrow with a reverse mortgage, based on where you live. Although you might have a substantial amount of home equity, your loan amount may be limited by FHA regulations.
6. The reverse mortgage loan balance cannot exceed the value of the home. If your home’s market value has dropped by the time you move out or pass away, you (or your heirs) will not be responsible for paying the difference between what is left on the loan and the home’s value.
7. You can decide how to receive the reverse mortgage payments. You may choose to receive the money one large lump-sum, or in regular installments (monthly, quarterly, or annually). Some lenders also provide a debit card that can be used to tap the funds from your reverse mortgage.
8. A reverse mortgage does not have to be made through the FHA. Some lenders do not offer FHA-approved reverse mortgages. However, many retirees choose to look for FHA-approved lenders that offer reverse mortgage loans.
9. A reverse mortgage loan will not affect your Social Security or Medicaid payments ― you will still receive them. Since it is a loan, and not true income, a reverse mortgage will not change your status for receiving government benefits.
10. The reverse mortgage lender cannot take your home away if you outlive the loan. In other words, if you receive the entire payout from your reverse mortgage and you have not moved or passed away, the lender cannot demand payment ― nor can the lender repossess your home. As long as you are living in the home, and you are paying the property taxes and homeowners insurance, it is safe from the lender.