Finance

By Sarah Batrous

The Scoop on Reverse Mortgages

Reverse mortgages are a bit of an elusive topic, and there is always fear of the unknown, especially where financials are involved. So, how can a reverse mortgage help or hinder you?

The Need-To-Know

Tracey Textor, a reverse mortgage lender for Home Bank, went over the basics.

“With the aging of our population, it is easy to see why a reverse mortgage can be utilized to supplement retirement income. It is a popular home loan that was created specifically for senior homeowners, 62 years and older, who want to convert part of their home’s equity into income,” explains Textor.

Beyond the requirement of you being at least 62 years old, your home must be paid for or have a low mortgage balance, and you must live in your home as your primary residence. The home in question can be a singlefamily home, a multi-unit property, a condo, or a townhome. To keep the loan from defaulting, you must pay property taxes or insurance and properly maintain your property. As with any loan, there are minimum income and credit requirements to ensure you qualify.

There are several types of reverse mortgages, but the easiest and most common one is the Home Equity Conversion Mortgage (HECM) which is supported by the U.S. Department of Housing and Urban Development. While this type is more expensive than most loans, the money it provides can be used for almost anything.

How Do I Receive the Money?

Since the mortgage is insured by the Federal Housing Administration (FHA), a maximum loan limit is set with the amount allotted being $625,500. Funds are dispersed in a variety of ways depending on your needs. lump sum, which gives you the maximum amount that is available, while the second way is through a line of credit that works like a savings account, giving you the freedom to draw from it whenever you would like.

The third option is to receive the proceeds as a guaranteed monthly supplement. The payment schedule lasts for as long as you live in your home, but you can also receive payments for a certain amount of time. If set up for a term, when the term ends this loan is still not considered due, meaning you still do not have to make a payment to the lender or move out of the home.

Some Pros and Cons

The biggest selling point is being able to pay for exciting things you may not have been able to just off your Social Security earnings. You can make home improvements, travel, pay off old debt, pay off an existing mortgage, get cash, or increase your monthly income.

While the good is interesting, there are a few pitfalls to be aware of before applying. The most common problem arises when it comes to your heirs having to take responsibility for the reverse mortgage upon your death. Your heirs are given two options: refinance the mortgage and start making a monthly payment on the new loan or put the property up for sale to pay off the reverse loan. This can put a lot of financial or personal stress on your children or grandchildren, so keep this in mind.

There are precautions set in place to make sure you are prepared. Before you take out the mortgage, you will be required to sit through an information session where an advisor will explain what a reverse mortgage can do for you and what you need to do to get started.

Overall, the point of a reverse mortgage is to support you financially using your home as equity. Like anything dealing with money, there is a need to be careful and consider all your options. Talk with your family and financial advisor to be sure that this will benefit both you and your loved ones.