Reverse mortgage loans allow homeowners age 62+, access the equity in their homes while still retaining the title of the home. Borrowers can use the extra income to pay for health care expenses, home repairs or remodels, travel or just to make ends meet through retirement.
Homeowners must have significant equity in their home and must continue to pay taxes, property insurance and homeowner’s association fees, if required, throughout the life of the loan.
Reverse mortgage loans are often excellent financial tools for senior homeowners, but because there are many things to consider when obtaining a reverse mortgage loan, we’ve compiled a list of tips to help make the process easier.
1. Lenders charge closing costs. Lenders will generally charge an origination fee, mortgage insurance premium, and other closing costs. These costs should be discussed up front. If you have any questions about the specific costs associated with reverse mortgage loans, ask your lender for more information.
2. The balance of your reverse mortgage loan will increase. Because you will not be making payments toward the loan amount and interest is charged on the outstanding amount each month, the balance of the loan will increase over time.
3. Reverse mortgage rates may have different interest rates. A reverse mortgage loan may have a fixed interest rate or a variable interest rate.
4. Reverse mortgage loans can use all of your home equity, but you are only responsible for repaying the value of the home. Most reverse mortgage loans have a non-recourse clause that prevents borrowers or heirs from owing more than the home is worth when it is sold.
For example, a homeowner has a reverse mortgage loan and borrows $200,000 over the life of the loan. He passes away and the home is left to his heirs. The heirs may either repay the $200,000 to keep the home or they can sell the home. If the home sells for only $180,000, the heirs are not responsible for the remaining $20,000.
5. Interest from a reverse mortgage loan is not deductible. Because reverse mortgage loans are considered loans and not a source of income, you cannot deduct the loan amount come tax time.
6. Find a lender who specializes in reverse mortgage loans. Be wary of lenders who say they can provide you with a reverse mortgage loan, insurance and annuities. A reverse mortgage loan is a big financial decision that should not be taken lightly. Research your lender and ask a financial adviser, friends or family members for recommendations.
7. Be wary of lenders who try to sell other services. If your lender is trying to sell home improvement services or other services in addition to your reverse mortgage loan, you may want to reevaluate your lender. If your lender is pressuring you to make any decision, it’s time to consider other lenders.
8. Consider your costs. Lenders can charge different amounts in origination fees and closing costs. It’s worth it to shop around and compare costs.
If you have questions about how reverse mortgage loans work, call a reverse mortgage adviser at 800-976-6211.