Reverse mortgage to finance your home

If you’re over the age of sixty-two and looking for money to pay off your current mortgage, finance home improvements, health care expenses, or supplement your retirement income, you may want to consider a reverse mortgage. This allows you to turn a portion of your home’s equity into cash without having to sell it or pay additional monthly bills.

There are several types of reverse mortgages. One is the Single Purpose Reverse Mortgage which is the least expensive option. This can be used for a single purpose specified by the government or a non-profit lender. Low- and moderate-income homeowners may qualify for this loan. There are also Home Equity Conversion Mortgages or HECMs backed by the US Department of Housing and Urban Development and the Reverse Property Mortgage backed by the companies that develop them.

HECMs and reverse property mortgages are more expensive than conventional home loans, and the upfront costs are high. You may want to consider this, especially if you plan to stay in your home for a short time or borrow a minimum amount. These loans are widely available, have no income or medical requirements, and can be used for any purpose.

Before applying for a HECM, you must consult with an independent counselor from a government-approved housing counseling agency. Several lenders who offer proprietary reverse mortgages also require your advice. He or she will explain the financial implications, costs, and alternatives of a HECM and can help you compare the costs of different types of reverse mortgages. The amount you can borrow from a HECM or property reverse mortgage depends on a few factors, such as your age, the type of mortgage, the appraised value of your home, and current interest rates. In general, the older you are, the more equity you have in your home, and the less you owe on it means the more money you can get.

Here are some reverse mortgage facts to keep in mind:

1. Lenders typically charge a mortgage insurance premium (for federally insured HECMs), an origination fee, and other closing costs. They may also charge service fees during the term of the mortgage. The law currently mandates a HECM reserve mortgage origination fee.

2. While it’s true that some reverse mortgages have fixed rates, most have variable rates that are linked to a financial index and are likely to change with market conditions.

3. The amount owed on a reverse mortgage grows over time. Interest is charged on the outstanding balance and is added to the amount you owe each month. This means that your total debt decreases as the loan proceeds advance the interest on the loan.

3. A reverse mortgage could deplete all or part of the equity in your home, leaving some assets for you and your heirs. Most of these mortgages have a non-recourse clause that prevents you or your property from owning more than its value.

4. You will be responsible for insurance, property taxes, fuel maintenance, utilities, and other expenses since you retain title to your property. If you do not pay them and maintain the condition of your home, the loan may become due and payable.

5. If you own a home with a higher value, you may be able to get a higher loan, but the higher amount you borrow also means higher costs. The key to determining the differences between a HECM and a home loan is to compare your benefits and expenses side by side.

6. You have the right to cancel the reverse mortgage agreement within three days for any reason except a penalty. You have to write a letter to the lender by certified mail and ask for a return receipt or return receipt, this will allow you to document that the lender received it on said date. Keep copies of your correspondence. After canceling, the lender has twenty days to return any amount you have paid for the financing.

Keep in mind that regardless of the type of reverse mortgage you are considering, you must understand all the conditions that could make the loan due and payable.