At Advanced Wealth, we love providing you with useful information on making your money work for you. One of the best ways is home ownership. However, there are those who want a piece of your homeowner equity. If you are a senior or someone who has loads of equity in their home, a reverse mortgage can be very tempting and is often sold as a bank paying you to live in your home. However, it is far more complicated than that, and a reverse mortgage is something to consider carefully before doing. With loads of buyers willing to literally buy back your home as you live in it, there can be many pitfalls and unpredictability along the way. To help you get a better sense of it, we have a few must know rules of reverse mortgages.
1. What it is – A reverse mortgage is where the home owner is paid in exchange for the equity in their home. They can still live there and payments stop when the owner passes away. OR SO THEY THINK. In actuality, many reverse mortgages will stop payment once the owner stops living in the home. This can be due to a move, renting the home, entering a nursing home, or even extended hospital stays.
2. What it is not – A reverse mortgage is not a second mortgage or home equity loan that has to be paid back by a certain rate. It gives home owners payments that do not have to be settled until the home is vacated. However, in most reverse mortgage situations, owners cannot sell their home or must get approval from the reverse mortgage company, who will take a percentage of the sale.
3. Who qualifies – Those interested in a HUD reverse mortgage must be the homeowner, 62 years or older, living in the home, and own the home outright or be able to pay the balance with the funds from the reverse mortgage. You can get more information on the HUD site.
4. Who gets the home – Once a reverse mortgage is entered into, the reverse mortgage company becomes a partial or total owner depending on the terms. After the home is vacated voluntarily or after death, final payments from the reverse mortgage company are collected and the remaining equity, if any, goes to the homeowner or their heirs – NOTE: this is not true in all cases.
5. How do I get reverse mortgage payments – There are five ways those entering into a reverse mortgage can receive payments. There are monthly payments for as long as the borrower lives in residence, monthly payments for a fixed period of months, payments at varied times, combination of scheduled and monthly payments, and combination of scheduled and monthly payments for a fixed amount of time. These will vary with each individual reverse mortgage.
Because this is such an important decision, be sure and discuss with family and friends before signing anything over.
And if you need more information, there is a great piece here from Bank Rage.
And if you need help with any of your financing, feel free to contact us.