Who Benefits From A Reverse Mortgage
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The downside to a reverse mortgage loan is that you are using your home’s equity while you are alive. After you pass, your heirs will receive less of an inheritance. Another possible downside would be regrets by taking a reverse mortgage too early in your retirement years.
is a reverse mortgage a good thing? Reverse mortgages are loans that enable homeowners aged 62 and older to convert part of their home’s equity into cash. For some older homeowners, a reverse mortgage can be a good way to get some much-needed cash when their other sources of income aren’t enough. But it’s not always a good idea.
Keeping this in view, what are the pros and cons of a reverse mortgage?
Reverse Mortgage Pros
- You’ll Have Regular Income During Retirement.
- You Won’t Pay Taxes on Money You Receive.
- It’s a Non-Recourse Loan.
- You Can’t Be Forced Into Early Repayment.
- You Must Be at Least 62.
- There Are Several Costs.
- Your Heirs Might Not Be Able to Keep the Home.
- Your Loan is Due If You Move Into Long-Term Care.
What are the advantages of reverse mortgage?
Pros. Money received from reverse mortgages is tax-free. Since a reverse mortgage is considered a loan, homeowners are not obligated to pay anything additional to the U.S. government. Another great benefit is that homeowners can create a steady stream of income by leveraging their home’s equity.
What Are The Drawbacks Of A Reverse Mortgage
Though there are benefits associated with a reverse mortgage, do keep in mind that the drawbacks are substantial enough to outweigh them. For one thing, you’ll typically pay high closing costs for a reverse mortgage. Additionally, while a reverse mortgage will give you access to some money, it won’t necessarily make your home more affordable. If you’re grappling with high maintenance costs and paying a lot of property taxes, you might continue to struggle financially even with that extra money since you’ll still be the one liable for those peripheral costs of homeownership.
Furthermore, a reverse mortgage is a loan and you’re responsible for repaying it. You can do so by selling your home, but then you’ll have nowhere to live and will be unable to leave your home to your heirs. If you don’t repay the loan during your lifetime, it will come due upon your passing. If that happens, and your heirs can’t settle its balance, they may be forced to sell the home you leave them to fulfill that debt.
It’s also worth mentioning that in recent years, the reverse mortgage industry appears to have resorted to predatory tactics. In fact, a 2019 USA Today investigation found that close to 100,000 reverse mortgages — many of which originated in low-income urban areas as a result of aggressive door-to-door sales — had defaulted in recent years. Many seniors sign up for reverse mortgages without really understanding what theyre getting into and ultimately regret it.
You Live With Someone
If you have friends, relatives, or roommates living with you who are not on the loan paperwork, they could conceivably land on the street after your death. Those boarders may also be forced to vacate the home if you move out for more than a year because reverse mortgages require borrowers to live in the home, which is considered their primary residence.
If a borrower dies, sells their home, or moves out, the loan immediately becomes due. One solution is to list your boarders on the loan paperwork however, no one living with you under the age of 62 may be a borrower on the reverse mortgage.
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Home Equity Conversion Mortgages
- Offered by lending institutions, insured and backed by HUD
- Maximum borrowing power governed by age and available home equity
- May come with high origination fees and closing costs
- Requires financial assessment to determine ability to pay taxes and fees
Homeowners have the option of taking their money from a reverse mortgage in different ways: as a lump sum, a monthly payment, a line of credit, or some combination of all three.
How Reverse Mortgages Work
Youre probably wondering how its possible to get a mortgage with no payments. Normally, when you take out a mortgage loan, the bank gives you a lump sum that you pay back with interest over time. At the end of the term, the loan is paid down to $0.
A reverse mortgage works in, well, reverse. The lender actually makes payments to you: You can choose to receive a lump sum, monthly payments, a line of credit or some combination of those options.
The interest and fees associated with the loan get rolled into the balance each month. That means the amount you owe grows over time, while your home equity decreases. You get to keep the title to your home the whole time, and the balance isnt due until you move out or die.
When that time comes, proceeds from the homes sale are used to pay off the debt. If theres any equity left over, it goes to the estate. If not, or if the loan is actually worth more than the house, the heirs arent required to pay the difference. Heirs also can choose to pay off the reverse mortgage or refinance if they want to keep the property.
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Reverse Home Mortgage Benefits Borrowers Success Stories
According to several borrowers stories, over one million American families have taken advantage of reverse mortgage benefits to improve their lives since the program began in 1989. In their guide to reverse mortgages, NRMLA shares several borrowers stories and how a HECM was used successfully as a financial planning tool. Among several touching testimonies comes the story of Henry, age 76, and Lily, age 73. The couple felt that they would have to sell their home if Henry retired, and leaving was the last thing they wanted to do. A reverse mortgage allowed him to finally retire while enabling the pair of high school sweethearts to continue living in a home that brought them and their family many happy memories.
Other borrowers stories provided by NRMLA addressed how reverse mortgage benefits homeowners healthcare costs and paying off medical bills. In Medicare and Medicaid services, national health expenditure growth is expected to average 5.5 percent annually over 2016-2026, which is faster than projected growth in Growth Domestic Product by one percentage point.
This means that healthcare costs are increasing faster than the rate of inflation. Retirees on a fixed income may have trouble affording their medical costs with just their pension and Social Security alone, in which case a reverse mortgage may provide the means to ensuring treatment necessary for living a long and happy life.
Benefits Of A Reverse Mortgage
With a reverse mortgage, seniors have a valuable tool available to them that can be utilized as part of their strategy in financial planning for retirement. There are many features of reverse mortgage loans that can benefit seniors who are looking to supplement their retirement income. So what exactly are they? Below are four reverse mortgage loan benefits.
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How Do You Qualify For A Reverse Mortgage In Canada
The Canadian government makes it easy for senior homeowners to qualify for reverse mortgages. The five things lenders typically look at are:
Typically, as long as youre 55+ and have a home thats worth something, youll be approved for a reverse mortgage. Generally, the older you are, the larger amount of equity youll be able to borrow, as the lender foresees you having less time to spend it.
What Are The Benefits Of Reverse Mortgage
Reverse mortgage ensures financial well-being in old age and provides monetary independence to senior citizens. It does not create immediate financial liability on the borrower as he/she does not need to repay the loan amount in EMIs. Avail a reverse mortgage loan by mortgaging your residential property and enjoy the financial stability that comes along. Simultaneously, continue to own and live in the mortgaged property.
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Beyond Advantages And Disadvantages Reverse Mortgages Are Not For Everyone
While the following are not strictly disadvantages, it is important to remember that a Reverse Mortgage may not be for everyone, consider the following:
- Beware if You are Eligible for Low-Income Assistance: If you are currently or will be eligible to receive low-income assistance from the Federal or State government , you will want to be careful that proceeds from a Reverse Mortgage does not disqualify you from that assistance.
- Reconsider if You Are Planning to Move in the Near Term: Since a Reverse Home Mortgage loan is due if your home is no longer your primary residence and the up front closing costs are typically higher than other loans, it is not a good tool for those that plan to move soon to another residence .
- Evaluate if You are Willing to Reduce Your Heirs Inheritance: Many people dismiss a Reverse Mortgage as a retirement option because they want to be sure their home goes to their heirs. And it is true, a Reverse Mortgage decreases your home equity affecting your estate. However, you can still leave your home to your heirs and they will have the option of keeping the home and refinancing or paying off the mortgage or selling the home if the home is worth more than the amount owed on it. There are numerous potential Estate and Retirement Planning benefits to a Reverse Mortgage see Innovative Uses of a Reverse Mortgage for more information on these options.
Learn More About H4p Reverse Mortgage To Build Or Buy Your Dream Home
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.
*Consult a financial tax professional for details.**Loan benefits and parameters are subject to change. Consult with a mortgage professional for up-to-date information.
Copyright© 2020. All Rights Reserved. Equal Housing Lender. Alpha Mortgage Corporation. NMLS# 93265. 1320 Airlie Road, Wilmington, North Carolina 28403 910-256-8999. Alpha Mortgage is licensed in North Carolina , Virginia , South Carolina , and Florida . NMLS#93265 Alpha Mortgage is licensed by Virginia State Corporation Commission as MC-4927 | Not all applicants will qualify. Please meet with a licensed loan originator for more information . Rates, fees, terms, and programs are subject to change without notice. Not all loans, loan sizes, or products may apply. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet loan-to-value requirements, and final credit approval. When refinancing your home mortgage, while your interest rate, monthly payment or loan type may decrease or change, your total finance charges may be higher over the life of the loan as a result of the refinancing. Approvals are subject to underwriting and program guidelines and are subject to change without notice.
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Who Benefits Most From A Reverse Mortgage
Homeowners who wish to stay in their homes and maintain the lifestyle they are accustomed to, who do not want to move from their neighborhoods, and who would like ready cash at their disposal, should consider applying for a reverse mortgage.
Beneficiaries of such loans are protected if the mortgage balance exceeds the value of their home, and the heirs of the homeowners are not forced to repay more than the propertys value. Reverse mortgages can be paid off sooner. The heirs to the property have several options, from selling the home to settle the debt to paying off the mortgage and retaining the title to the property.
Discover The Benefits Of A Reverse Mortgage Line Of Credit:
Reverse mortgages have become more attractive as a result of low mortgage rates, which have given homeowners the ability to access more of their homes equity, even if its value hasnt considerably gone up. In a reverse mortgage, this ultimately makes more money available to the homeowner, who could use the funds in retirement for healthcare, home repairs and more.
The big question for millions of seniors is: Is it worth using this tappable equity, or do the risks outweigh the benefits? Here well examine the pros and cons.
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Reverse Home Mortgages Risks
Many potential borrowers are skeptical of reverse mortgages out of fear of defaulting on their loan. While its true that every major financial decision deserves careful deliberation, its worth noting that the government made recent updates to the HECM program designed to reduce the rate of borrower defaults.
A 2016 article published by the Center of Retirement Research at Boston College reports that a combination of policy changes from 2013 to 2015 are projected to cut the number of defaults on new reverse mortgages by 50%.
The 2013 HUD policy change restricts the amount that a borrower can withdraw as a lump sum within the first year of the loan to 60 percent of the initial principal limit. A higher percentage may be withdrawn if needed to pay off mandatory obligations , but the 60 percent limitation is designed to make HECM funds last longer, promote better money management, and introduce an opportunity for increased funds through lines of credit.
The second policy change referenced by Boston College was implemented by HUD in April 2015 in order to make the HECM an even safer loan product and protect the senior Americans interested in reverse mortgage benefits. In the past, income and credit history were not required for reverse mortgage approval, but the new change mandates a financial assessment to evaluate borrowers with documentation such as:
- Income verification
- Calculations for life expectancy set-asides
How Reverse Mortgage Requirements Have Changed Over The Years
HUD HECM standards have changed during the past few years. The reason? Massive program losses in the billions of dollars.
HUD has also substantially reduced reserve mortgage losses. In fiscal year 2018, the HECM reserve was down $13.63 billion. By fiscal year 2019, the potential loss had been reduced to $5.92 billion.
It is very possible that reserve losses might actually be wiped out in fiscal year 2020 if claims continue to fall and home prices remain at least stable.
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How To Repay The Money You Borrow
You don’t need to make any regular payments on a reverse mortgage. You have the option to repay the principal and interest in full at any time. However, you may have to pay a fee to pay off your reverse mortgage early.
You have to repay the amount left owing when:
- you sell your home
- you default on the loan
You could default on a reverse mortgage by:
- using the money from the reverse mortgage for anything that is illegal
- being dishonest in your reverse mortgage application
- letting your home fall into a state of disrepair that would lower its value
- not following any conditions in your reverse mortgage contract
Each reverse mortgage lender may have their own definition of defaulting on a reverse mortgage. Ask your lender what could cause you to default.
When you die, your estate has to repay the entire amount owing. If multiple individuals own the home, the loan has to be repaid when the last one dies or sells your home.
The amount of time that you or your estate has to repay a reverse mortgage may vary. For example, if you die then your estate may have 180 days to pay back the mortgage. However, if you move into long-term care, then you might have one year to pay it back. Make sure you ask your lender for information about the timing for paying back a reverse mortgage.
Should You Get A Reverse Mortgage
A reverse mortgage may be helpful but isnt for everyone. There are a few factors that can make a reverse mortgage worth it:
- Your home is increasing in value considerably. If youre building up a lot of equity in your home, you may be able to take out a reverse mortgage and still have money left over for your estate.
- You plan to stay in your home for a long time. Just like a regular mortgage, there are significant upfront costs associated with the loan. Youll want to be sure you plan to live in that home long enough to make those costs worth it.
- You can cover the costs of your home. Since staying current on property taxes, insurance, maintenance, etc. is required to keep your reverse mortgage current, its important that you have plenty of cash flow for these expenses.
Ultimately, the decision to take out a reverse mortgage is one you should weigh very carefully. Though its an easy way to get cash, it could put your finances at more risk in the long run. Be sure you fully understand reverse mortgage pros and cons before taking one on.
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Who Are Reliable Reverse Mortgage Experts In San Diego & Nearby Areas
If you are interested in applying for a reverse mortgage loan in San Diego, or perhaps simply weighing your options, Downsizing San Diego are the professionals to call. From extensive market research, moving consultations to helping you downsize to a place in Downtown San Diego, well work alongside you to ensure you choose the right choice for you and your family.
You can count on us to have our most experienced agent on it. Well make sure to provide you with the best service available, each step of the way. Give Nick Alameddin a call for all your inquiries today!