What are reverse mortgages? As opposed to making monthly payments to your bank, the lender sends money back to you instead. In other words, the stream of payments goes the opposite direction from what borrowers are used to. Reverse mortgages give retirees a simple way to tap their home equity without the risk of a conventional mortgage or having to sell their property and move to a cheaper housing.
They have various payout options for you to tap your home equity. Five different payment plans are available. One type of payment involves taking equal monthly payments that run as long as one borrower is alive and resides in the home as a principal residence. A fixed term of years of payments is also available; after the specified term of payments, you will stop receiving monthly payments even if you are still living in the home. A flexible line of credit is also available; this gives you the choice on how much and when to take money out based on the maximum amount of the line.
No access to the full equity. Reverse mortgages only offer a part of your home equity. The maximum mortgage amount is computed by the FHA based on the age of the youngest borrower, the appraised value of your home, and the prevailing interest rates. It is important to note also that borrowers have to pay the costs of a reverse mortgage such as the mortgage insurance premium and third-party lender charges.
A reverse mortgage can lose your home. Although reverse mortgages do provide some level of protection to homeowners, they still require you to keep up your end of the bargain. In other words, you need to be responsible enough to do your part; there are “dire” consequences.
So what are some responsibilities of borrowers who choose a reverse mortgage? Paying for utilities, homeowners insurance, real-estate taxes, as well as flood insurance should not be taken for granted by borrowers. Lenders can take action if borrowers disregard their responsibilities such as those mentioned above.
It is imperative that you seek help from a mortgage professional to understand the intricacies of reverse mortgages and to avoid complications.