A reverse mortgage loan allows the borrower to convert part of the equity in their homes into cash.
The product has been conceived as a means of help to the retirees who are sustaining a livelihood on a limited income, so that they can utilize the accumulated wealth in their homes to look after their basic monthly living expenses and also pay for their health care.
The loan is called so because instead of the borrower, in this case, the lender makes payments to the borrowers. The borrower does not need to pay back the loan until he sells off or vacates the home.
But are you aware of how a reverse mortgage works?
Just as we mentioned above, a reverse mortgage has been brought into use to benefit the retirees; therefore there are certain restrictions when it comes to the eligibility criteria. Here is a list of the requirements and responsibilities of the borrowers:
#1. Age Qualification
All the borrowers must be 62 years and above of age. A reverse mortgage is possible in case of one spouse being under 62, only after the loan officer collects the additional information to determine the eligibility.
#2. Primary Lien
A person is eligible for a reverse mortgage only if this mortgage is the primary lien on the house. Any other existing mortgage needs to be paid off using the proceeds from the reverse mortgage.
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#3. Occupancy Requirements
The property that’s been used as collateral for obtaining the reverse mortgage must be the primary residence of the borrower. Vacation homes and investor properties do not qualify for a reverse mortgage.
#4. Taxes and Insurance
Borrowers must be paying all their real estate taxes, homeowners insurance, and other mandatory obligations like the condominium fees.
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#5. Property Condition
It is mandatory for borrowers to fulfill the mandatory repairing requirements to maintain a desirable condition of the property.
#6. Conveyance Of The Mortgaged Property
When a reverse mortgage becomes due and payable upon the death of the last existing borrower, the property is conveyed by will or operation of law. The estate or heirs may gratify the HECM debt by paying either the lesser of the mortgage balance or by paying 95% of the market value of the property.
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Certain misconceptions about reverse mortgages have been preventing homeowners from considering these complex loans. However, eligible prospects should not proceed too quickly before realizing the possible after effects of their financial decisions. Here are a few truths about reverse mortgages.
#1. The borrower retains ownership of the mortgaged property. The reverse mortgage is only a lien against the property.
#2. A reverse mortgage is a “non-recourse” loan, meaning that you, your property, and your heirs, will never owe more than the appraised value of the home at the time of loan maturity.
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#3. You are eligible to get a reverse mortgage if you are using the proceeds to pay off your other existing mortgages.
#4. The reverse mortgage is not due until your home (the mortgaged property) is not your primary residence anymore.
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Negatives For Reverse Mortgages
Do you think that reverse mortgages are a scam? Well, there are chances that you do because there are certain negative features of the real estate loan.
#1. Reverse Mortgages Fees
All mortgages have some internal costs that the borrower bears, but reverse mortgage has a fee, which includes the interest rate, loan origination fee, mortgage insurance fee, appraisal fee, title insurance fees, and a few other closing costs, which makes it too expensive when compared to other mortgages.
#2. Payback Time
A reversed mortgage loan is due whenever you plan to permanently change your primary address. It might become a problem in case you are shifting to a care facility or due to any other health issues, then you’ll have to bear the cost of the loan at the same time.
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#3. Decrease In Equity
A reverse mortgage loan affects your estate. It will always decrease the equity in your home, which will leave lesser money for your heirs.
Do you think a reverse mortgage is a safe option? Let us know in the comment section below.
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