Aspects To Consider Prior To Applying For A Reverse Mortgage
Reverse mortgage is generally a low interest loan specially designed to enable senior home owners to use their home equity as collateral
. The loan may seldom be for the total amount of the value of the home but the amount is determined by the age of the youngest home owner and it usually does not have to be repaid until the home owner moves out or passes away. Although reverse mortgages were initially developed to help senior citizens many of whom are retirees generate extra money for living expenses, the upfront fees may be higher than those of conventional mortgages. Sometimes they may exceed 10% of the loan. But they have become considerably cheaper because many big lenders including Bank of America have waived the upfront fees.
Sometimes known as a Home Equity Conversion Mortgage (HECM), reverse mortgages provide unique benefits for retirees over the age of 62 who are still living in their primary homes with considerable equity in their homes with little or no income at all. The eligibility is set by the Federal Housing Authority (FHA) who has the power to tell the HECM lender how much they may be allowed to lend you based on your age and home value. Getting a reverse
mortgage may be cheaper now than before but it may still be relatively expensive. Therefore it may be a good idea for you to consider the various aspects of reverse mortgages before deciding to apply for one.
Reverse mortgages for seniors may be useful only if you have accumulated a substantial equity in the home that you currently own. This may be because the fees and charges related to the loan may be relatively high so you may need to have a huge amount of cash set aside to pay for these fees and charges. So if your home has low equity in it, you might want to consider other options. In general you have to be at least 62 years old to qualify for reverse mortgages. However, the younger and healthier you are, the better the deals become. For example, let us assume that Tom is 80 years old and probably has only a few more years to live while Harry is 63 years old with probably a decade or two more for him to enjoy his life as a senior citizen. Between Tom and Harry, reverse mortgages might work better in Harrys favor especially if he plans to spend the rest of his days in his own home. This is because for Tom, the couple of years that he has left may not be worth the high fees that he may have to pay. Meanwhile for Harry, the fees may be spread over a decent number of years so he probably will not feel too burdened by the high fees.
As stated, you may not have to repay your loan until you move out or until you die, in which case, your heirs may have to repay your loan on your behalf or use the proceeds from the sale of your house to pay for your loan. So getting reverse mortgages might work well if your children do not wish to keep your home because the government ensures that the loan amount may be repaid by selling the home even if its worth is now less than the loan amount. You may also want to take note that you may be getting just a portion of your equity so if you are in need of a significantly huge amount of cash, you might want to consider other options such as selling your home and finding a cheaper home for you to live in.
In general, the benefits of reverse
mortgage
help senior citizens obtain cash to fund for their lifestyle or any other expenses. However you may want to bear in mind that it may not be the best or only way to obtain cash. It might be good for you to explore other options such as taking out a home equity line of credit. Whatever the case, the decision is yours to make.
by: Ask Bill
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