As America's population ages, reverse mortgages are growing in popularity as a means for older homeowners to tap into their home equity for needed income. In order to best manage a reverse mortgage, it helps to understand them thoroughly, and follow a few basic tips and guidelines.
A reverse mortgage allows older homeowners, age 62 and above, to borrow against their home equity without having to repay the loan as long as they remain in the property. These loans are designed to be repaid by selling the home when the borrower(s) eventually pass away or otherwise vacate the property, so no payments are required in the interim.
Many seniors use a reverse mortgage to supplement retirement and social security income, pay for healthcare, make home improvements, or fund travel and leisure activities. You can even convert the remaining balance on a regular mortgage to a reverse mortgage, so that you don't have to make any more monthly mortgage payments.
Here are six helpful tips for those interested in reverse mortgages:
1 - It may pay to wait
You can usually qualify for a higher income stream of monthly payments if you're older. Depending upon your situation, it may be worthwhile to postpone the mortgage, just as it's sometimes more lucrative to postpone retirement in order to boost social security and pension plan payouts.
2 - Ask lots of questions
Understand the terms of the mortgage, ask questions until all the small print is comprehensible, and be careful not to violate important terms of the agreement that could have negative repercussions. Don't nullify the mortgage unless it makes powerful financial sense.
3 - Primary forever
If you sell your home, or no longer use it as a primary residence, you'll need to repay the cash that you received from the reverse mortgage lender, plus interest and other fees. You get to retain the remaining equity in your home, assuming there's any left.
4 - One as good as two
Typically, you don't need to repay the loan as long as the borrowers named on the mortgage continues to live in the house, and keeps the taxes and insurance paid up and current. If a spouse dies or moves into a healthcare facility, don't panic. The other spouse is still protected as long as you were married at the time the reverse mortgage was obtained.
5 - Do it yourself
Don't pay a third party vendor to help direct you to a lender or mortgage broker. These estate planning services sell information that you can get by yourself for free, so it's a waste of your money.
6 - Payout is key
There are several different ways to get money for your home equity through a reverse mortgage, and choosing the most appropriate method is one of the most important decisions you'll make. Figure out whether you want equal monthly payments, a line of credit you can draw on when needed, or a combination of monthly checks plus a standing line of credit. You can also elect to get all of the money as a lump sum payment.
Once you've got a game plan that suits your needs, shop according to the plan that suits you best to find the most attractive deal from the most reliable lender. Consult a real estate attorney with experience in reverse mortgages before signing any documents, and then look forward with confidence to a more carefree retirement.