What You Need to Know About Reverse Mortgages

About reverse mortgages
Before you sign any papers, it’s very important that you understand everything you need to know about Reverse Mortgages.

Seniors, are you having trouble getting through retirement? Have you’ve heard about Reverse Mortgages and how other seniors have pulled the equity out of their homes to help them get through retirement? Does all this Reverse Mortgage information confuse you?

It’s important to understand what a Reverse Mortgage is as well as the benefits and risks of this type of loan before you sign any papers. Banks offer information on these types of loans, but you may find attending a workshop to be more helpful.

What Is It?

Investopedia.com defines a reverse mortgage as “a loan. A homeowner who is 62 or older and has considerable home equity can borrow against the value of their home and receive funds as a lump sum, fixed monthly payment or line of credit. Unlike a forward mortgage – the type used to buy a home – a reverse mortgage doesn’t require the homeowner to make any loan payments.

”Instead, the entire loan balance becomes due and payable when the borrower dies, moves away permanently or sells the home. Federal regulations require lenders to structure the transaction so the loan amount doesn’t exceed the home’s value and the borrower or borrower’s estate won’t be held responsible for paying the difference if the loan balance does become larger than the home’s value. One way this could happen is through a drop in the home’s market value; another is if the borrower lives a long time.”

How Do Reverse Mortgages Work?

When you take out a reverse mortgage loan, you basically pull out the equity you have in your home to help you through retirement. You can choose to take out that equity in one of two ways:

  • One lump sum
  • Monthly payments

The loan does not need to be paid back until you either sell your home or stop living in it.

Your homeowner’s insurance needs to be maintained and the taxes on your home paid.

If you choose to, you can make payments on your reverse mortgage. But these payments are not required.

What Benefits Does a Reverse Mortgage Offer Seniors?

Most people who are over the age of 62 have half of their net worth tied up in their homes. A Reverse Mortgage allows you to cash out your equity when you need it while still living in your home. This is the most appealing feature of this type of loan. With a Reverse Mortgage, it’s quite possible to live comfortably in retirement.

Are There Risks Involved?

This all sounds great, but are there risks involved? Yes. A Reverse Mortgage puts your home at risk because it limits the amount of money you can pass on to your children when you die. How?

  1. When you die and your children inherit your home, they must either pay off the mortgage themselves or sell the property to pay off the loan.
  2. If you can no longer live independently in your home and must move into a nursing home, the reverse mortgage must be paid off. This usually means you must sell your home.
  3. The interest rates on a Reverse Mortgage loan may be high depending on your credit.
  4. If you put your home up as collateral and then borrow money against your home, you risk losing it.

Also, be aware of other possibly risky scenarios. For example, if you sign the reverse mortgage and go into a nursing home while your spouse lives in the home, the terms state the loan must be paid back. This means your spouse may no longer have a home to live in.

Risks can be reduced by limiting the amount you borrow on the loan. If the loan is smaller than the total equity, you can sell the home and still have enough to buy a smaller place live.

And since the risks could involve and affect your children greatly, talk with them when you take out a reverse mortgage.

Knowing About Reverse Mortgages

Maintaining your independence and solving a cash flow problem if your retirement benefits don’t cover your expenses is ideal. So carefully review all available information as well as the terms on a Reverse Mortgage. And once you understand the benefits as well as the risks of Reverse Mortgages, you can decide whether or not it’s good for you.

Many government agencies caution seniors to review the terms and consider all their options before taking out a Reverse Mortgage.

Are you confused about Reverse Mortgages? Contact me, Charles D’Alessandroyour Brooklyn Real Estate Agent with Fillmore Real Estate with your questions. I can help. Call (718) 253-9600 ext. 206 or email [email protected] today.


Charles D'Alessandro

Charles D’Alessandro
Your Brooklyn Real Estate Agent
718-253-9600 ext. 206

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