Reverse mortgages sound good on paper but are they really that good for you? In case you don’t know what this loan is, a reverse mortgage is a loan that gives people who are 62 or older money based on their equity in their home. The loan has to be paid when the house sells or when the owner passes away.
Everything You Need to Know About Reverse Mortgages
Now, reverse mortgages aren’t evil, but they do require a lot of research. There are different aspects that need to be monitored. This is where people tend to make mistakes.
A common mistake is to get advice online instead of a nonprofit. A nonprofit will probably be able to explain the strict requirements you have as the homeowner in a way that’s easy to understand.
Like the fact that you have to live at home for at least 6 months out of a year. You also can’t be away from your home for more than 12 months for medical reasons.
You need to be aware that a reverse mortgage drains the equity in your home and what you could profit from if you sell it. You also can’t leave it to your children because once you pass away, the lender will sell it. They do this to collect the balance that you owe.
That is unless your estate pays the balance.
Also, since you have to be at least 62, you or your partner could risk losing your home if the older partner dies and the other isn’t 62.
You have to pay attention to your mail. You have to return a statement proving that you still live at home. If you don’t, you can lose your home.
There is Counseling Required
Because this process can be confusing, counseling is needed before a reverse mortgage is issued. You need to get at least 5 out of 10 on a quiz to prove that you understand what you are getting into.
Though even if you pass the test, you still may only understand half of what it means to get this type of mortgage.
There also have been laws around this loan that have tightened in the last couple of years. They have reduced the amount you can draw from, and they require credit checks and a full assessment of assets, income, living expenses, consumer debt, tax liens, and other financial obligations.
Let’s Talk Money
The loan’s amount is based on your creditworthiness, current interest rate, the value of your house, and your age. The older you are, the more you can get.
You can’t try this on vacation or investment homes.
A big danger to reverse mortgages is outliving the amount of money you get and still having to follow the terms. This can include paying for property taxes, homeowner’s insurance, and maintenance. This can be disastrous on a limited budget.
It may be best to put aside some money in case of an emergency.
Property tax reductions and deferrals are an option for seniors who live in NH. These can take off $175,000 of the taxable value of your home depending on your age and municipality.
Another saving grace is the U.S. Department of Housing and Urban Development. Its At-Risk Extension can help anyone 80 or older who has a terminal illness, a long term disability, or a unique occupancy need.
It will give you a year-long extension on any delinquent property taxes and prevents foreclosing.
What is the Best Path?
A different loan that could work is a home equity loan. It’s less expensive in the beginning and over time but does have monthly payments. You can also refinance an existing mortgage or use a reverse mortgage to pay off your original loan.
Ultimately, the smartest move is to talk to a professional before making any moves. Make sure you know everything you can, that way you can feel comfortable with whatever move you make.
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