Are you afraid to do a reverse mortgage? Twelve Reasons You Shouldn’t Be.

Twelve Reasons You Should  Not To Be Afraid To Do A Reverse MortgageDoes what you’ve heard about reverse mortgages make you afraid of them?  Has your fear kept you from getting the facts to see if one might benefit you?

A reverse mortgage is a mortgage with special terms for seniors 62 and older.  The most popular, and only one available in Minnesota, a Home Equity Conversion Mortgage or HECM, is insured by HUD.  Let’s look at twelve reasons you shouldn’t be afraid of reverse mortgages.

  1. Reverse mortgages are highly protected – One of the protections includes that borrowers receive counseling from a HUD trained and approved third-party counselor.  Others include prohibiting cross-selling, disclosures and implementing requirements that limit scams and fraud.
  2. No monthly payments required – Your cash flow improves because you don’t have to make a monthly mortgage payment.   Instead of making monthly mortgage payments, the reverse mortgage is due when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.  And with no monthly mortgage payments required, the risk of foreclosure is reduced.
  3. A variety of program options are available – The HECM Standard, HECM Saver and Home Purchase Programs are available with a fixed rate and adjustable rate options.  This gives you options to find one that is right for your situation.
  4. The interest rate is not determined by your income and credit score – The interest rate is based on the program chosen, no matter what one’s income or credit score is.  With a conventional mortgage, one’s credit score, income and assets will impact the interest rate of their loan – with a fixed income the interest rate is likely to be higher if one even qualifies for a conventional mortgage.
  5. Funds are guaranteed to be available during the term of the loan – As long as one abides by the terms of the loan, the funds are guaranteed to be available.  Borrowers are responsible to pay property taxes, insurance and maintain the home and if applicable pay home owner association fees.
  6. Flexibility on how funds are received – Funds are available to borrowers in a line of credit (has a growth rate), monthly payments (structured to your needs), lump sum or a combination of these.
  7. No limitations on how the funds can be used – One can use the funds received from the reverse mortgage however they choose – there are no restrictions.  The reverse mortgage is like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.
  8. The title stays in your name – the bank does NOT own your home, you continue to own the home.
  9. Closing costs are comparable to conventional loans – as with any mortgage there are closing costs.  While often said to be expensive, actually the reverse mortgage closing costs compare to those of a conventional loan.
  10. Fees charged are regulated by HUD – HUD only allows the necessary fees which are standard and customary – no mark up and “junk” fees are allowed.
  11. Reverse mortgages are non-recourse – This means if the loan balance is higher than what the home can be sold for, the borrower or their estate does not have to come up with the difference.  If the home is sold for more than the loan balance, the difference goes to the borrower or their heirs.
  12. Social Security and Medicare are not Impacted – One can still receive Social Security and Medicare with a reverse mortgage.  Medicaid may also be received under ceratin circumstances.  The reverse mortgage is a loan and the proceeds are not considered income.

Face your fear and get the facts about reverse mortgages and see if one may be right for your situation.  You may find that a reverse mortgage could make your life easier and provide you cash for your needs and desires.

© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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