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A reverse mortgage can be an excellent retirement tool for many homeowners ages 62 and over. It allows you to borrow cash against the equity that may have accumulated on your home. Apart from increasing your income, it also allows you to stay in your home for as long as you want. However, there are several things that you need to consider before getting a reverse mortgage.
the amount you get
The amount you can get as a reverse mortgage depends on the type of equity you have built up on your home. If possible, get a home appraisal to see how much you are entitled to borrow. Check if the amount is sufficient for your requirements and then make your decision. However, the good thing is that you will still have title to your home as long as you stay in it. However, you will have to pay property taxes, home insurance, and other fees to maintain your home on a regular basis.
Payment options
When it comes to receiving money from a reverse mortgage, you can choose from different options. You can get it as a lump sum, monthly payment, or line of credit. You can also try a combination of these. Consider your personal situation before making the right choice. If you have any large one-time expenses that need to be covered, you may want to take out a lump sum. However, if you need money for regular living expenses, you will have to choose the monthly payment option. In the event that you only need the money for emergencies or additional expenses, you can consider getting a line of credit.
legislation
HUD continues to change the reverse mortgage rules every now and then. It may not affect existing borrowers. But as a senior homeowner considering a reverse mortgage, you may have to keep yourself aware of all these rules and regulations. According to the latest, HECM borrowers will now have to pay an initial mortgage insurance premium of 2% of the maximum loan amount instead of the 0.5% they were paying previously. This is regardless of how much you draw up front. However, the annual MIP of 1.25% on the outstanding mortgage balance has now been reduced to 0.5% for all borrowers. Borrowing limits have also been reduced when compared to what they were in the past.
expenses
There are many upfront expenses associated with reverse mortgages such as loan origination fees, appraisal fees, mortgage insurance premium, and closing costs. It may be up to 3 to 4% of the loan amount and is generally funded into the loan. Apart from these, the lender may also charge some loan servicing fees. Many reverse mortgage lenders may contact you via reverse mortgage leads. Check with all of them about the fees involved before you sign an agreement with any of them.
Payment plan
Unlike a conventional mortgage, reverse mortgages do not require monthly payments. It becomes payable only after your death or moving away from your primary residence. This is not an option you should consider if you are considering moving away from your home five years from now. If you do, you will not be able to offset the closing costs you pay for the reverse mortgage you borrow.
family opinion
Talking to your family members is very important before getting a reverse mortgage. Your heirs may want to keep your home after your death. In most cases, borrowers use the entire equity when they take out reverse mortgages. Once the borrower dies, the house will have to be sold to pay off the loan. If family members want to keep the home, they will have to arrange alternative means of financing to pay off the mortgage. Find out what your family members want to do with your home before you take out your mortgage.
Uses
How you use a reverse mortgage will determine if you will benefit from taking out one. There are no restrictions on how you can use your mortgage amount. You can use it for ongoing living expenses, going on a family trip, or covering the costs of renovating your kitchen. However, you will still need a plan before you get paid. Your age also matters when it comes to using the money from this type of mortgage. For example, if you’re still in your early 60s, you may want to avoid unnecessary spending so you don’t run out of money at a later stage.
alternative options
It will work for you if you are short on your finances and if your family members have no interest in keeping or inheriting your home. However, if you try to see the bigger picture, you may find many other options. Check if you have any other income or assets to sell. You can sell your home to your kids, sell your home, refinance your existing mortgage or even decide to downsize and start living in a retirement community.
A reverse mortgage is available to all homeowners who are 62 years of age or older. However, it may not suit everyone’s requirements. You will have to see if this is the right option for you before you decide to borrow. Make sure you are familiar with the fees and regulations and have a set usage and payment plan in place. Also look for alternative options that fit your needs better than what a reverse mortgage can do.
This mortgage is a lifelong decision that can help you live your retired life in peace and comfort. However, you may still want to make sure it’s the right decision to make before you answer “yes” to a mortgage lender who comes to you with live leads of a mortgage.
Source by Nick Davis
