Little Known Truths About Reverse Mortgages
Hungry for straightforward details about reverse mortgages? Curious as to whether you should consider one?
Here are 3 little known truths — often misunderstood facts — that will get you up to speed:
1) It’s a Type of Home Equity Loan
A reverse mortgage is actually a type of home equity loan. The amount borrowers can receive from the loan partly depends on how much equity is in the home. With a reverse mortgage, you are borrowing your own home equity. However, unlike traditional home equity loans, no loan payments are paid until the loan becomes due.
(You are required to have homeowner’s insurance, pay property taxes and keep up with the home’s regular maintenance.)
2) The Primary Borrower Needs to Be 62+
Reverse mortgages aren’t right for or even available to everyone. The first requirement is age; the borrower must be at least 62 years old, according to the Consumer Financial Protection Bureau. Also, the home must be the borrower’s primary residence. That doesn’t mean the owner can’t own additional property but the home with the reverse mortgage must be where the borrower lives most of the time.
3) The Loan Will Come Due
A reverse mortgage lets you enjoy the equity you’ve got in your home, which can make retirement a lot more comfortable. However, as with any loan, it must be paid back eventually.
With a reverse mortgage, repayment is due when the borrower dies or moves away from the home.
You or your heirs will have choices:
- If the loan balance is less than the property value, heirs can take over the property by paying-off the loan balance, using cash or a new mortgage to fund the pay-off.
- Or, they can sell the home and keep the equity remaining after paying off the loan.
- If the loan balance is equal to or more than the home value, then the bank absorbs the difference and your heirs have the choice of paying 95% of the appraised value or the balance owed to keep the home, whichever is less.
- Or, they can choose to sell the home or let it revert to the lender and owe nothing.
Will a Reverse Mortgage Be Right for You?
After years of building up equity in your home, a reverse mortgage is one of the most accessible sources or retirement income — you can live the life you have hoped for during retirement.
Fewer than half of Americans are adequately prepared for retirement, but you don’t have to be among them. Take the first step toward a more secure future. Is a reverse mortgage right for you?