REVERSE MORTGAGES

Are you looking for tax-free income?  Would you like to increase your standard of living?  Do you need money to pay for healthcare or medical treatment?  Consider a reverse mortgage. 

A reverse mortgage is a program that allows you to tap the equity in your primary residence.  To be eligible, you must be 62-years of age or older, own your home outright or have a mortgage balance so low that it can be paid off from the proceeds of a reverse mortgage at closing. 

The amount of the reverse mortgage is a function of your age, interest rates and the value of your home.  You can receive the funds through a line of credit, a monthly payment, lump sum or a combination of all three – whichever works best for you.  It’s rather easy to qualify for a reverse mortgage as income and credit scores aren’t taken into consideration.

 You or your heirs will never owe more than the house is worth, no matter how high interest rates go or how many payments you’ve received.    Payments are due in full (plus interest and fees) only when the homeowner moves, dies, or sells the home.  Any remaining equity belongs to you or your estate.  No debt is passed along to the estate even if the reverse mortgage exceeds the value of the home.

The downside to a reverse mortgage is that closing costs are high.  They include origination fees that are about double the cost of conventional mortgages, interest rates that are adjustable and mortgage insurance that must be purchased.  Reverse mortgage counseling is also required as a measure of consumer protection. 

There are three types of reverse mortgages.  The Home Equity Conversion Mortgage (HECM) is backed by the U.S. Department of Housing and Urban Development, is widely available and can be used for any purpose.

Single purpose mortgages are offered by state and local governments and can be used for only one purpose determined by the lender, such as home repairs.   

Private or proprietary reverse mortgages are private loans backed by financial institutions or family members and can act as an estate planning tool by reducing the tax burden on the estate. 

If you are thinking of a reverse mortgage as a way to obtain cash or looking for ways to transfer assets in your estate, consult an attorney familiar with real estate and estate planning to find out what’s best for you. 

As with everything, you should do your homework.  Shop around and compare the advantages and disadvantages of the various reverse mortgages and lenders.   Make sure you understand all conditions of the reverse mortgage and the total annual loan cost rates – the annual average cost of all the itemized costs of the mortgage. 

Don’t be pressured into making a decision.  In most cases you a “right of recission” – the right to change your mind and cancel the transaction within three calendar days, but ask your lender about the process – how it works and whom to contact.