Things to Consider When Taking a Reverse Mortgage
As you may know already, as a home-owning American senior, you can take out a special home equity loan known as reverse mortgage. Reverse mortgages can be taken by senior home owners aged 62 or above. The money the senior gets from a reverse mortgage is considered tax-free. The money can be received in the form of a monthly income paid by the lender, or can be utilized as a lump sum or as a line of credit to draw upon.
Money from the reverse mortgage does not need to be repaid back to the lender until the owner passes away or decides to sell the house. In this situation, the reverse mortgage looks like a very attractive proposition for home-owning seniors. Before taking a reverse mortgage, there are some things which as a senior you may want to consider, before “going for it”.
- Ask your children - You may want to ask your children whether or not they care that they will not inherit your home, if you take a reverse mortgage on the home. The home will become the property of the lender when the loan becomes due (in the event of death or when you decide to sell the house). Your heirs (children) will receive the balance cash when the home sale is complete and the proceedings are used to pay off the reverse mortgage loan.
- Consult with important parties - Before taking the plunge into a reverse mortgage, you may first want to consult with a reputed financial planner, banker, family member, or an attorney, or a financial manager, to see if a reverse mortgage is the right option for you to satisfy your immediate cash needs. It is also a requirement that you meet with and get counseling from a reverse mortgage counselor, when you get the HECM insured by the Government. The HECM is the fancy name given by the Federal Government to the reverse mortgage, and it stands for Home Equity Conversion Mortgage.
- Check with HUD for approval - You can get a list of federally approved lenders who can engage in reverse-mortgage lending from the HUD website. This website is at URL www.hud.gov/groups/seniors.cfm.
- Check track records - You can call the “Office of Financial Regulation” in your state to see whether a particular reverse mortgage lender is licensed to operate in the state.
- Talk to other people - You can talk to other people in your neighborhood and contacts/friends circle to find out more about the lender in question. You can also talk to previous and other customers of the same reverse mortgage lender.
- Know that fees are regulated - Some of the costs/fees associated with a reverse mortgage, are regulated by the Federal Government. These are like MIP (mortgage insurance premium) and origination fee. There are other fees also which can vary from lender to lender.
