If you have seen reverse mortgages advertised then a reverse mortgage may sound appealing to you. However, there are many things you need to know prior to signing an agreement for a reverse loan of this sort. Knowing the facts will help you to determine whether or not this type of loan will benefit you.
Home Equity Conversion Loans Compared to Other Mortgages
If you obtain a standard home loan you will always be at risk of losing your home if you miss monthly installment payments. It can be easy to do that if your financial situation changes suddenly, making such loans stressful. The addition of fees and eventual foreclosure on your home may be unavoidable.
One of the reasons reverse mortgages are so popular is that obtaining one can prevent you from having to deal with such a risk of home loss. You don’t have to pay any money back each month, so you can’t actually miss the payments. You also can’t be forced out of your home by the lender. In fact, a provision of the loan will be the fact that you will be required to live in the home for the loan’s duration.
Age, Residency, and Equity Requirements for Reverse Loans
Residency in the home is a requirement of all reverse mortgages. If you sign the loan agreement you must already be living in the home and be prepared to stay in it. You will also continue to own the home, and as a result, be required to pay the property taxes and other associated fees of home ownership on an ongoing basis as you normally would.
A reverse mortgage lender will also only give you a loan if you are at least 62 years old and your home has a substantial value. You will not be allowed to borrow the entire value of the home. The allowable percentage which can be borrowed must, therefore, be high enough to make the loan process worth undergoing. For those reasons, you cannot obtain a reverse mortgage if you already have a different type of home loan which is active unless you use the HECM money to pay the original loan balance.
How and When You Can Borrow Reverse Mortgage Money
You can borrow reverse mortgage money in any payment format you require. For example, you may request a single large sum to pay a medical bill. Alternatively, you may prefer to receive smaller amounts each month to cover ongoing living expenses. You can also set up a credit line against your home’s value so that you can borrow money only as you need it. In some cases, a combination loan can be set up allowing you to receive payments in a mix of those methods as well.
How and When a Reverse Mortgage Must be Paid Back
If you have a reverse mortgage you are obligated to use the home as your primary residence. However, provisions are made for short absences, such as temporary hospital stays. You will only be considered to no longer live in the home if you are absent from it for 12 months in a row. If that occurs or if you pass away or choose to move away the loan balance will be owed back to the lender at that time.
If you leave the home and do not pay the reverse mortgage balance your lender will have the right to oversee the sale of the home. Proceeds will be kept by the lender unless the proceeds exceed the loan balance. If that occurs the remaining funds will be given to you or to your heirs. If you pass away before paying the loan balance your heirs will be given six months to repay the balance and keep the home. Otherwise, it will be sold. If the sale of the home does not cover the entire balance owed the remaining balance will be erased by the lender. Your family’s assets will not be impacted.