Reverse mortgages are home loans that are given against a residential property. There is an age limit requirement for such a loan (62 years or older), making it optimal in some instances for retirees that need the added cash. The loan will be repaid once you or your heirs decide to sell the home. There are many rules that come attached with a reverse mortgage as well as some payments that you have to keep up with to reduce the risk of foreclosure.
If you find yourself asking, “Should I get a reverse mortgage?” we have the answer for you. If any homeowners are planning on taking out a reverse mortgage, they should first be aware of the risks. People who meet any of the conditions may not be a good fit for a reverse mortgage against their home.
1. Wanting to Leave an Inheritance for Their Heirs
If you take out a reverse mortgage, you should know that it could mean less inheritance for your heirs. This is because they will have to repay the loan by:
- Selling the house
- Giving the property to the lender
If you sell the home and have leftover funds after paying off the debt, your heirs will receive that amount. In case the house sells for less money than the loan that was offered, you will be covered for the amount by the FHA insurance. This is why you have to pay upfront for the insurance premium when you take out a reverse mortgage.
2. You Need to Pay Medical Bills
Seniors who have health issues often take out a reverse mortgage as a way to pay for their bills. However, you still need to be healthy enough that you can stay in the home for most of the year. If an elderly person’s health begins to decline so much that they need to move to treatment facilities or senior care centers, the loan will need to be paid back in full too. This is because it is no longer the primary residence for the homeowner.
Shifting to an assisted facility or nursing home for 12 months consecutively will be considered as moving permanently – according to the regulations set by the reverse mortgage. If you want to avoid being foreclosed, you have to certify via writing that you are still living inside the home.
3. You Are Planning on Moving Soon
For folks who are considering moving homes soon for whatever reason, a reverse mortgage may not be your best option. In the short term, there are closing costs that you will incur including mortgage premiums, lender fees and home appraisal fees.
If you sell or vacate the home, you only have 6 months to pay off the reverse mortgage. You can keep any extra funds that are generated beyond the balance that was paid by the lender. However, the closing costs that you paid to get the reverse mortgage are not recoverable.
For people who are still wondering, “Should I get a reverse mortgage?” the answer is simple. If the items above do not apply to you, a reverse loan may be a good option for you. For people who are cash-poor but also meet the requirements above, there could be other viable options. Call Reverse Loan Solutions to see whether a reverse mortgage is a good idea for you!