Reverse Mortgage Questions
Reverse Mortgage Questions…
Sometimes phrasing things differently is helpful in people’s understanding ideas. Generally, I don’t read articles in my series, “Helping you move forward, in Reverse” for fear of coming across as lazy. But I’ve seen Reverse Mortgage articles written in large national publications that have significant errors. The following is well-written and reinforces my comments and other videos.
Characterizing reverse mortgages as “often misunderstood”, author Doug Whietman of the finance publication Money-Wise aims to answer five important questions for potential borrowers. Before making a decision about obtaining a reverse mortgage, read the article “Answer these 5 questions before doing a Reverse Mortgage”.
“Reverse mortgages are often misunderstood, but they can be a handy tool for retirees looking for cash. With a conventional mortgage, you borrow money to buy a house and make payments that allow you to build value in the home. With a reverse mortgage, you borrow from the value and make no payments. You keep the title to your home. The bank collects on the loan when you die, sell the house, stop living there, fail to pay property taxes or homeowners insurance, or stop taking care of the place.
Here are answers to five common questions to help determine if a reverse mortgage could work for you.
Why do a reverse mortgage?
A reverse mortgage can be a great way to secure extra money to use as you see fit. Most reverse mortgages are federally insured Home Equity Conversion Mortgages (HECMs) that come with no limits on what you may do with your loan payouts. You may use the money to cover living expenses, pay medical bills, complete home projects or go on vacation. If you have an existing mortgage, you can use the reverse mortgage money to pay it off.
Who’s eligible for a reverse mortgage?
To take out a reverse mortgage, you must be 62 years old or older and own your home outright or have a low mortgage balance. You must be confident you can afford maintenance on your home and other costs, including insurance and any homeowner’s association fees. You must plan on living in the home full time. If you’re absent for longer than 12 months, the bank can collect on the loan.
How does a reverse mortgage work?
As with conventional mortgages, reverse mortgage loans come with fixed rates or adjustable rates. Paid in a lump sum is the fixed-rate reverse mortgage loan. Retirees who choose the adjustable-rate option have the option of receiving monthly payments, a line of credit, a lump sum or a combination.
As a general rule, the more your house is worth and the older you are, the larger the potential loan. Age, for purposes of the loan, is based on the age of the younger spouse.
Capped at $726,525 (for 2019) is the government-backed HECM reverse mortgage. (Here, Doug flubbed a little. Capped at $726,525 is the Maximum Claim Amount or MCA and not the loan size. The MCA is the maximum home value used in the calculations that determine the Principal Limit.)
What are the downsides?
Many financial advisers will tell you it’s better to exhaust all other financial means before applying for a reverse mortgage. Consider cutting down on living expenses or liquidating your portfolio before pursuing a reverse mortgage. If you’re still in need of additional funds, a reverse mortgage may be the best option.
Signing up for a reverse mortgage means you’ll essentially be committing to living in the house for the rest of your life. Should you ever want to move, you’d need to pay off the loan. If you fall behind on property taxes or insurance payments, you could find yourself at risk of foreclosure.
How do I decide?
It’s always a good idea to get a second opinion. Bring younger family members into the decision-making to ensure that all the nuances of the agreement are fully understood. If you get cold feet after signing the deal, you have a window of at least three days to cancel without penalty. For the right homeowner, a reverse mortgage can be an excellent way to turn a home into liquid funds.
Colorado Reverse Mortgage
If you’re not located in Colorado, searching for a lender can be a daunting task. I’ve provided this link to give you guidance in your search for an expert. Colorado Reverse Mortgage is more than just a Reverse Mortgage company and feel it’s important to look at and address a bigger picture. We discuss Reverse Mortgages (of course) but will be happy to share our knowledge and input on a variety of “senior-centric” topics. Mace visits about the importance of Retirement Planning, Estates and Trusts, Social Security, Home Safety, Power of Attorney documents, Senior Abuse (financial, physical and mental), and many other areas. Remember, we’re not just a reverse mortgage company, we’re your neighbors.
Use this Reverse Mortgage calculator. This is a safe site and the calculator will give you a rough estimate. However, there are better ways than this calculator that will provide more accurate numbers. An experienced Certified Reverse Mortgage Professional will also know ways to maximize the financial benefits to a consumer.