Considering Reverse Mortgage Finances
Fluctuations in the economy and a depressed housing market are forcing increasing numbers of people to look for creative ways to navigate these times of financial uncertainty. A growing number of senior citizens are investigating the options that a Reverse Mortgage can offer.
Reverse Mortgages, also called Home Equity Conversion Mortgages (HECM) are federally insured mortgages which are available to elderly individuals who are prepared to mortgage their home back to the bank. In return for this “reverse mortgage” the borrower collects a percentage of the home’s value from the bank, either through a line of credit, a lump sum payment or monthly payments.
Many advisors agree that, for some seniors, a Reverse Mortgage can offer a good financial investment for their senior years. This is particularly true for people who want to continue to live in their own house but lack the resources to do so without an additional income source. Individuals who will benefit most from the Reverse Mortgage program include seniors over the age of 72. Older seniors receive a higher percentage of their home’s value as a HECM loan than younger seniors will obtain.
A second benefit of the HECM loan is that the mortgage is insured by the Federal Housing Administration. Individuals who might otherwise be wary of taking out a mortgage have federal assurance that their loan’s terms will not change and their payments will continue, even if the lending institution experiences problems.
The various options that reverse mortgage borrowers have to obtain their money is something that each borrower should consider before signing on for an HECM loan. Obtaining the loan in one lump sum may result in lower closing costs or the lender may even waive these costs. Conversely, interest rates on a one lump sum payment may be higher than for a line of credit or monthly payments.
In addition, borrowers should examine how the various payment options will affect their tax status as well as any other incoming payments. Receiving a one-time payment may adversely affect a senior’s income tax statement and raise their taxes for that year. In addition, different types of payment options can have an impact on an individual’s eligibility for supplementary social security, Medicaid or Medicare benefits.
Seniors aged 62 and older who are considering a Reverse Mortgage should list the payment options that they are considering along with the pros and cons of each method of payment. It’s important to remember that borrowers with good credit can negotiate for better interest rates and even lower closing costs when dealing with a lending institution. Reverse Mortgage counselors are able to answer questions and offer advice that will provide different perspectives and allow borrowers to make the decision that is the best for their individual situation.
