When you are considering a reverse mortgage, you need to review the reverse mortgage pros and cons. Review the following information which will help you in your decision.
The PROS of Reverse Mortgages:
• The HECM Line of Credit (LOC) option has many advantages for the senior borrower. First, the line of credit grows over time at the SAME EXACT rate as the interest rate on the loan. If you let the line sit there untouched for say five or ten years, it will be substantially larger at the end and ready for you to use. Also, the line of credit cannot be cancelled by the lender. You also do not have to qualify with a particular credit rating in order to get a HECM or qualify for the line of credit. While there is a financial assessment in order to ascertain if you can pay your taxes and homeowner's, there is no requirement to have a particular credit rating. I find this line of credit feature to be a tremendous benefit for those who choose monthly stipends and also a line of credit.
• Tax free income insured by the Federal Government which continues as long as your home is your primary residence. Freedom from stress and worry.
• Change your plan at any time from a line of credit to monthly proceeds or a combination (depending on what remains.)
• Unlike an equity loan there is no health requirement and no minimum credit score score requirement, although a credit report is required on all loans.
• A great option for seniors wanting to remain in familiar surroundings and in the same community where they've lived for years.
• Moving from one's home can cause emotional turmoil and stress for many senior homeowners. Memories were made in your "home sweet home" and proximity to loved ones may seem a much better option.
• Reverse mortgages can eradicate existing monthly mortgage payments or other debt. NOTE: These debts will be transferred to your reverse mortgage and interest will accrue throughout the life of the loan.
• You can remain in your home as long as you wish no matter what is owed the lender. You can never be forced out of your home as long as your real estate taxes and homeowner's insurance are paid and as long as you maintain your home.
• You can refinance your reverse mortgage as many times as you like as long as there is enough equity in your home to do so.
• You can never owe more than your home is worth. This is called a non-recourse loan with no deficiency judgment and where the home stands for the debt. Upon your passing, however, should your heirs decide to keep the home rather than sell, the lender will require repayment of the full mortgage debt.
• None of your assets can be attached to repay the reverse mortgage debt. So whether you have bank accounts or investments, they cannot be used to satisfy the reverse mortgage balance. Additionally, the debt does not pass to your heirs or your estate. The house stands for the debt. Information on the Note the Mortgage and the Loan Agreement clearly state "you are not personally responsible".
• Reverse mortgages have safeguards: capped interest rates, a limitation on fees, HUD counseling, asset protection (non-recourse loan), no maturity date (cannot become due during a borrower's lifetime (goes to age 150.
• Your heirs may be able to claim the interest from your Reverse Mortgage on their income taxes. (Check with your tax advisor).
• There are broad uses for a reverse mortgage. Use proceeds for long term care or other expenses such as repairs on your home or even a vacation or new car.
The CONS of Reverse Mortgages:
• A Reverse Mortgage has all the typical closing costs one finds with a typical FHA mortgage, but HECM mortgage insurance premium fees are higher. The HECM has FHA mortgage insurance added at the outset of the loan and ongoing throughout the life of the loan. But these are not out of pocket expenses. Instead, they are rolled up into the loan.
• A Reverse mortgage can reduce your children's and grandchildren's inheritance because a reverse mortgage is a rising debt loan, and the balance increases over time. Since there are no mortgage payments are being made, it is the opposite of a typical mortgage where equity increases as mortgage payments are made.
• If you have a relative or friend living with you who depends on you for their living arrangements and you pass away, they will have to vacate the premises. In considering such a situation, a reverse mortgage is not a good option.
• Selling your home can provide a greater return on your investment than a Reverse Mortgage.
• Moving from your residence in less than five years makes a Reverse Mortgage impractical. It does not make good sense to use a Reverse Mortgage short term due to the closing costs which you have paid.
• If you fail to pay your real estate taxes or homeowner's insurance or neglect to maintain your home, you could lose your home. You and the lender will ascertain if setting up a LESA, Life Expectancy Set side for taxes and insurance will be in your best interests. You will not have to worry about paying these yourself, but the lender, out of the escrows set aside for this purpose, will pay them for you. In doing this, however, there are times that if your mortgage balance is high, there will not be enough money to do the Reverse Mortgage due to amount of the LESA.
Reverse mortgage lenders are not looking to take your home, but if there is a persistent failure or refusal to maintain your real estate taxes and homeowner's insurance which is considered a default. foreclosure can result. The tax authority could place a lien on your home if taxes aren't paid and sell your house to satisfy their lien.
•If you leave your primary residence for a period exceeding 12 consecutive months, the reverse mortgage will become due. (Nursing homes, assisted living, etc.)
• If your heirs wish to benefit from your home after your passing, they can sell the property and keep the remaining equity or they can get their own mortgage on the home. However, in keeping the home, the full balance will be due.
• Medicaid may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each and every month. (Check with your attorney and Medicaid to discuss Medicaid's parameters). .
With the changes that have taken place over the past few years, HECM borrowers can having great confidence they can remain in their homes for as long as they wish. Questions about maturity events (when the HECM ends) and the new Financial Assessment which qualifies borrowers and makes certain they can pay their taxes and insurance are covered on this page.
Not having to pay any monthly mortgage payments on the HECM is a great advantage. But what's even better is the LOC, Line of Credit feature. You can draw on your credit line whenever the need arises whether to enjoy life or just pay some bills.
The HECM line of credit stays open so the funds are there when you need them. The HECM line of credit grows over time as the unused portion of the line of credit grows at the compounding rate on the loan plus 1/2%. So, for example, if you took out the HECM line at age 62 or 65 and left it there untouched for say 10 or 15 years, think of how your money would have grown.
Both the reverse mortgage line of credit and the conventional HELOC only accrue interest on monies drawn. Only the reverse mortgage line of credit has a growth rate on the unused portion of funds. The monies continue to grow at the same rate as the interest charged on the loan. This gives borrowers greater borrowing power as the amount in the line increases year after year.
Additionally, the HECM line of credit stays open and cannot be closed at the bank's discretion.
Financial planners used to give reverse mortgages a bad rap, but since the HECM safeguards have been enhanced, this is no longer true. Reverse mortgages can be a valuable financial planning tool which can help retirees cover many of the lifestyle expenses that crop up and also enhance their retirement portfolios.
Rather than obtaining your reverse mortgage out of sheer need, financial planners suggest taking it out earlier. Reverse mortgages are now safer than ever with the inception of the Financial Assessment which assures lenders that the borrower can pay their real estate taxes, homeowner's insurance, and any fees such as condo or HOA fees.
HUD has designed the reverse mortgage to ensure borrowers have all the resources they need to fulfill all the requirements of the loan as it progresses throughout their lifetime as they age in place. Many financial planners who study income plans now see the benefits of a reverse mortgage and using the home's equity for retirement income.
Advisors Mortgage will provide you with a free HECM proposal, and since this loan can be tailored to YOUR financial needs, we will work up a quote with differing scenarios so you can choose which one works best for you. Advisors Mortgage is here to a answer your questions and concerns. Be among the many who enhanced their lifestyle and retirement portfolio with a reverse mortgage.
Asking the right questions can help you determine if a Reverse Mortgage is the right vehicle for you. After all, a Reverse Mortgage is not for everyone.
* Am I going to stay in my home for the foreseeable future?
* Am I wanting to leave my home to my children and grand children? is a reverse mortgage a good idea?
* Do I understand the expenses of getting a reverse mortgage?
* Am I concerned for a relative or friend whose living arrangements will change when I pass away?
* Am I able to maintain my home in an adequate fashion and pay my taxes and insurance? Do I understand that I could lose my home if I fail to pay my taxes and my property insurance?
* Have I considered other options besides a reverse mortgage?
* How would my life change if I could get rid of my mortgage payments or have money left over each month to do the things I've been wanting to do? Will the reverse mortgage change my life enough to warrant getting a reverse mortgage?
All these questions are legitimate questions senior borrowers might consider. Consult with family and trusted advisors. A free quote will give you the numbers and figures so you will see firsthand how much money is available to you.
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