Reverse Mortgage, What is it?

If you’re 62 or older, and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses, you may consider a reverse mortgage.

A reverse mortgage allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.

Here is some information about what a reverse mortgage is and how to find the right one for you.

Do I Qualify?

A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of their home equity into cash while still retaining home-ownership.

The point of a reverse mortgage is to help seniors with limited income to cover basic monthly expenses and healthcare.

Instead of making monthly payments to the lender, as with a regular mortgage loan, the lender makes payments to the borrower.

As long as the borrower lives in the home, the borrower does not have to pay back the loan. If the borrower no longer lives in the home, the reverse mortgage is paid back in one lump sum.

Here are some things to keep in mind about reverse mortgages:

  • Fees & Costs

Lenders will charge a fee and other closing costs, along with servicing fees over the life of the mortgage.

  • Amount Owed

Interest is added onto the balance you owe each month. That means the amount you owe grows as the interest on your loan adds up over time.

  • Interest rates may change over time.

Most reverse mortgages have variable rates. Some reverse mortgages – mostly HECMs – offer fixed rates, but they tend to require you to take your loan as a lump sum at closing.

  • Interest is not tax deductible

Interest on reverse mortgages is not deductible on income tax returns – until the loan is paid off, either partially or in full.

  • Home-related Costs

In a reverse mortgage, you keep the title to your home. That means you are responsible for property taxes, insurance, utilities, fuel, maintenance, and other expenses.

Shopping for Reverse Mortgages

If you’re considering reverse mortgages, shop around and do your research. Compare the options, terms, and fees from various lenders.

Some questions to consider when shopping for a reverse mortgage:

  • Do you want a reverse mortgage to pay for home repairs or property taxes? If so, find out if you qualify for any low-cost single purpose loans in your area.

  • Do you live in a higher-valued home? If you do, you may want to look into a proprietary reverse mortgage. This will allow you to borrow more money, but keep in mind, the more you borrow, the higher the fees.

  • What are the fees and costs? Shop around and compare the costs of the loans available to you. While the mortgage insurance premium is usually the same from lender to lender, other fees and interest rates will vary.

  • How about the total cost? It’s important to understand what the total costs are for any mortgage. Ask a lender to explain the Total Annual Loan Cost rates. It will show you an estimate of the annual average cost of a reverse mortgage.

This article submitted by Ken Venick: MSRN Member

Ken Venick, Equity Mortgage Lending    Phone: 443-471-4310,