Reverse mortgage is not for everyone
Brenda and Bob: We are seeing a lot of advertisements for reverse mortgages. We own our house outright and are in our late 70s. What is your opinion of these products?
Elaine: Let's talk about these products and who qualifies for them, then discuss the benefits and things to consider when deciding on them.
A reverse mortgage is a home loan for senior homeowners who have substantial equity in their homes. (The minimum amount varies among lenders, but many will not consider loans of less than $60,000). The lender loans you money based on the value of your home, the amount of equity you have in your home and your age at the time of the application. The lender pays you in one of three ways: a lump sum, in monthly installment payments or as a line of credit. This loan differs from a home equity loan or second mortgage because you do not repay the loan unless you sell your home, move out permanently or die.
Most seniors take these loans with the intention of being paid until their deaths. This may be what you are thinking about. But if your circumstances change and for some reason you sell your home, you will need to repay the loan. The amount will be more than you borrowed because you did not make any payments.
You seem to meet the required criteria for a reverse mortgage. The borrowers must be over 62, which you are. And your mortgage must be completely or nearly paid off, which you stated yours is. Because there is no income criterion, this is not something we need to address.
Here are the questions you should ask before you apply for a reverse mortgage.
How much will the fees be for the reverse mortgage, and what part of these will I need to pay in cash? Be sure you know the complete amount in fees you will be charged for the loan. Ask for all of this in writing. You can get "good faith estimates" from several lenders. You are not obligated to use any of them, if you change your mind.
How much money will I receive monthly or in a lump sum from the loan? Again, get this in writing from several lenders. Just like anything else, do some comparison shopping. This is a big decision, so take your time making it.
There are a few things to remember when considering a reverse mortgage. You will retain the title to your home. This means you are still responsible for the property taxes, insurance and general upkeep of the property. These expenses will not go away and mostly probably will increase annually with inflation. If the expense of maintaining a home has been difficult in the past, the funds generated by a reverse mortgage may not solve this problem. You may need to consider other options.
A reverse mortgage may affect your continued eligibility in need-based government programs such as Supplemental Social Security (SSI) and Medicaid, especially if you take the payout as a lump sum. Make sure you understand the implications these funds could have on your eligibility to these programs before you agree to take this type of loan. If you take the payout in monthly amounts, you may have to spend the funds within the month you receive them so they are not considered "income," which also may negatively impact your eligibility.
As with any important document, do not sign anything you do not understand. And never sign a loan application with blank spaces.
With a federally insured "Home Equity Conversion Mortgage" (HECM) you will probably receive the most funds. Let's assume you have $200,000 in equity in your home. As a lump sum you will receive about $110,831. Or you may receive a credit line of $110,831 that may grow by 7.17 percent each year (worth about $221,409 in 10 years if untouched). Or you can take monthly payments of $774 for as long as you live in your home. Or you take a combination of all three of these.
Check with your accountant and your family members to see if a reverse mortgage is the best option for you.
Have a question for Elaine? Write her at Elainezimm@aol.com
By ; Elaine Zimmermann
Via : www.commercialappeal.com
Elaine: Let's talk about these products and who qualifies for them, then discuss the benefits and things to consider when deciding on them.
A reverse mortgage is a home loan for senior homeowners who have substantial equity in their homes. (The minimum amount varies among lenders, but many will not consider loans of less than $60,000). The lender loans you money based on the value of your home, the amount of equity you have in your home and your age at the time of the application. The lender pays you in one of three ways: a lump sum, in monthly installment payments or as a line of credit. This loan differs from a home equity loan or second mortgage because you do not repay the loan unless you sell your home, move out permanently or die.
Most seniors take these loans with the intention of being paid until their deaths. This may be what you are thinking about. But if your circumstances change and for some reason you sell your home, you will need to repay the loan. The amount will be more than you borrowed because you did not make any payments.
You seem to meet the required criteria for a reverse mortgage. The borrowers must be over 62, which you are. And your mortgage must be completely or nearly paid off, which you stated yours is. Because there is no income criterion, this is not something we need to address.
Here are the questions you should ask before you apply for a reverse mortgage.
How much will the fees be for the reverse mortgage, and what part of these will I need to pay in cash? Be sure you know the complete amount in fees you will be charged for the loan. Ask for all of this in writing. You can get "good faith estimates" from several lenders. You are not obligated to use any of them, if you change your mind.
How much money will I receive monthly or in a lump sum from the loan? Again, get this in writing from several lenders. Just like anything else, do some comparison shopping. This is a big decision, so take your time making it.
There are a few things to remember when considering a reverse mortgage. You will retain the title to your home. This means you are still responsible for the property taxes, insurance and general upkeep of the property. These expenses will not go away and mostly probably will increase annually with inflation. If the expense of maintaining a home has been difficult in the past, the funds generated by a reverse mortgage may not solve this problem. You may need to consider other options.
A reverse mortgage may affect your continued eligibility in need-based government programs such as Supplemental Social Security (SSI) and Medicaid, especially if you take the payout as a lump sum. Make sure you understand the implications these funds could have on your eligibility to these programs before you agree to take this type of loan. If you take the payout in monthly amounts, you may have to spend the funds within the month you receive them so they are not considered "income," which also may negatively impact your eligibility.
As with any important document, do not sign anything you do not understand. And never sign a loan application with blank spaces.
With a federally insured "Home Equity Conversion Mortgage" (HECM) you will probably receive the most funds. Let's assume you have $200,000 in equity in your home. As a lump sum you will receive about $110,831. Or you may receive a credit line of $110,831 that may grow by 7.17 percent each year (worth about $221,409 in 10 years if untouched). Or you can take monthly payments of $774 for as long as you live in your home. Or you take a combination of all three of these.
Check with your accountant and your family members to see if a reverse mortgage is the best option for you.
Have a question for Elaine? Write her at Elainezimm@aol.com
By ; Elaine Zimmermann
Via : www.commercialappeal.com
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