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A Reverse mortgage loan is is a mortgage loan that allows homeowners to borrow money using their home as security for the loan. Unlike a regular mortgage, with a reverse mortgage loan, borrowers don’t make monthly mortgage payments. A Home Equity Conversion Mortgage (HECM), is the most common type of reverse mortgage, which is a special type of home loan only for homeowners who are 62 and older. The borrower can choose to take lump-sum funds, line of credit, or via structured monthly payments.
Facts About Reverse Mortgages
- Reverse mortgages are loans.
- At least one of the borrowers needs to be age 62 or above.
- Those who take a reverse mortgage are borrowing against their home equity.
- Reverse mortgages do not need to be repaid as long as one of the borrowers lives in the house.
- Reverse mortgages usually eliminate any other ongoing mortgage payments.
- Reverse mortgages can be a sound source for those grappling with financial troubles and need financial freedom.
- It’s essential to do your homework before committing. We recommend arranging a consultation with one or more lender consultants.
- Funds are tax-free and any remaining equity belongs to your heirs.
Is a Reverse Mortgage a good idea?
Like any financial product, the reverse mortgage has its own pros and cons. A steady evaluation and your need for a supplemental income should be considered. Are you planning on staying in your home for the long term? Do you need to reduce your present mortgage payment? All these factors should be taken into account. This will ensure you benefit from a slew of regulations protecting borrowers and features subsidized by the federal government.
Reverse mortgages can be a good option for seniors with specific economic circumstances. Everyone is different and other seniors can go for a home equity loan or home equity line of credit. If you don’t plan to stay at your home in the long run. You should have a look at the loan origination costs. Those costs are paid upfront and can be costly. So getting a reverse mortgage can not be a good idea if you plan to relocate.
What are the typical Reverse Mortgage fees?
The minimum loan origination fee for HECM loans is $2,500, with an overall cap of $6,000. Other costs include appraisal and inspection fees, title search and insurance, surveys, and recording fees.
Pros of a Reverse Mortgage
- Keeps your home.
- Maintain your standard of living.
- Enjoy extra income as long as you live in your home.
- Income is tax-free.
- Get cash in a line of credit, lump sum, or through monthly payments.
- No worries about going underwater (owing more than your home is worth).
Cons of a Reverse Mortgage
- Lose your equity over time.
- Increase your debt load over time.
- Incur high upfront costs, such as a maximum $6,000 origination fee.
- Interest paid isn’t tax-deductible.
- Your heirs could lose your home after your death — unless they repay the loan.
- Income received can reduce your government benefits.
Estimate your Reverse Mortgages loan amount with the Lending Tree’s Reverse mortgage calculator: