If you are 62 or older and need to borrow money, leveraging your home’s equity through a reverse mortgage or reverse mortgage loan is an option. At Imperial Mortgage, we believe in looking carefully at our clients’ financial and life situation and recommending the best options, and carefully explaining the advantages and disadvantages for the most informed decision.
Reverse mortgages can be difficult to understand. At Imperial Mortgage, we want to help with reverse mortgage education to help you make the right choices. Essentially, a reverse mortgage is a loan in reverse. Instead of borrowing the money, then paying it back over time, you are paid the loan over time, then repay the loan when you are no longer living in the home.
Reverse mortgages can be a great solution for someone who needs long-term, steady source of income. But reverse mortgages are not suitable for everyone. Let’s look at the reverse mortgage pros and cons so you can see how Imperial Mortgage works with you to educate and empower you to make smart financial decisions.
There are two main types of reverse mortgages for seniors age 62 and older. A traditional reverse mortgage lends the value of the home’s equity, in monthly payments, to the borrower. The mortgage is repaid when the home is vacated by the borrower or sold. Reverse mortgage loans allow homeowners to convert home equity to cash with no monthly mortgage payment. In the case of a reverse mortgage loan, the cash is paid lump sum, not as monthly payments.
Given the right set of circumstances, a reverse mortgage can be a great way to access the equity you have gained in your home, increasing your monthly income, and offering financial security during retirement.
Reverse mortgages are flexible, offering many options to the borrower. It is important to consult with a financial advisor to determine what is best for your financial situation. Households in financial need can use a reverse mortgage to eliminate current monthly mortgage payments and may additionally quality for a monthly stipend.
Reverse mortgages have a low risk of default as there are no payments, you simply must maintain the home and live in the home. In fact, you will never owe more than your home’s value at the time the loan is repaid, even if the reverse mortgage lender paid you more than your home is worth at loan settlement – an advantage to you if the home price declines.
There are no restrictions on how the money is used and there are typically no taxes applied to the money you receive, whether that is lump sum or in monthly payments.
You can live in your home for as long as you want. You essentially lock in the value of your home, which can be an asset in preserving your wealth. The Home Equity Conversion Mortgage (HECM) is popular as it is federally insured (you’ll still receive payments even if your lender defaults!).
Reverse mortgages are not for everyone! There are some disadvantages…
Reverse mortgages tend to have high upfront fees for insurance, closing costs, and origination fees. These fees are wrapped into the mortgage so the borrower does not pay out-of-pocket. However, these fees do detract from the value paid to the borrower.
Imperial Mortgage can help by offering a NO FEE, no cost reverse mortgage. Contact us for details!
Reverse mortgages have caps or ceilings that may restrict the borrower from the full equity value of the home. The current 2017 loan limit for HECM reverse mortgages is $636,150.
While the total loan amount will never exceed the value of the loan, the amount of interest that you eventually must pay back grows larger every month.
If you are planning to move in the future, consider the length of time you will spend in your home and run the numbers. A reverse mortgage makes most sense when the borrow plans to stay in the home for many years. In fact, should you become injured or disabled and unable to remain in your home, the reverse mortgage is then settled, leaving you with the remainder of the equity, if any.
If you are currently eligible for low income assistance, a reverse mortgage may serve to disqualify you. Be sure to tell your advisor everything related to your financial situation!
Since a reverse mortgage or reverse mortgage loan decreases your home equity, this also reduces the value of your heirs’ inheritance. Be sure to consult your financial advisor on the matters affecting your estate.
These are a few of the reverse mortgage pros and cons. Everyone’s life situation is unique. Talk to someone who wants you to make the best-informed choice. Talk to Imperial Mortgage & Real Estate, serving Placer, Sacramento, and Nevada counties for 25 years!