Working Caregiver- Why are Reverse Mortgages popular?

These loans are not repaid until you die, sell the home, or move out of it permanently.  You do not need income to qualify for the loan because you are not going to make any monthly payments.

Why are Reverse Mortgages popular?

Reverse mortgages are gaining in popularity. Why? They provide a means (through a loan or mortgage) to access the equity in your home to give you additional cash. These loans are not repaid until you die, sell the home, or move out of it permanently. You do not need income to qualify for the loan because you are not going to make any monthly payments. And it does not matter if your credit is not stellar.  There are only two qualifications needed.

 

  • You and all parties on the deed of the home must be at least 62 years of age: and
  • You must not owe anything on the home (There are some exceptions for small amounts, but those mortgages must be repaid.).

 How much can you get?  That depends on your age, the appraised value of your home and current interest rates.  The older you are, the more cash you can get, but age is determined by the youngest owner of record.  And the lower the interest rate, the greater the loan amount.  For loans insured by the Federal Housing Authority with a mortgage insurance premium (MIP), the appraised value of your home is subject to limits that vary by county.

Why do you want insurance on the loan?  The MIP is necessary to guarantee that you will receive your promised loan advances and not have to repay them no matter:

  •  how long you or co-borrowers live there,
  • what happens to your homes value, or
  • what happens to the lender. 

It also guarantees that your total debt can never be greater than the value of the home at the time the loan is repaid.  This is insurance for you - not for the lender.

What is the total loan amount at payoff? The total amount of the debt will include the amount of cash advances, deferred interest costs, and any up front closing costs and fees associated with the start-up of the mortgage. If the total is less than what your home is worth, then the excess is retained by you or your estate upon the home’s sale.  If the total is more than what your home is worth, the loan is capped at the value of your home. The lender can not seek repayment in excess of the value, regardless of the debt amount.  

Reverse mortgages are one alternative to seniors in accessing the equity in their homes.  Another alternative is to sell your home and move. Depending on your reasons for needing the additional cash, reverse mortgages may not be the ideal solution. Look at all your options. Talk it over with your children and heirs. And consult with a reverse mortgage specialist before making any decision. Reverse mortgages can play a large role in financial security when made for the appropriate reasons but can spell disaster if the proceeds are used inappropriately.

 

Sandra McElvaney is a Realtor living in Onion Creek.  To contract Sandra, call (512) 751-6352 or send an email to smcelvaney@sbcglobal.netto receive her monthly real estate newsletter.  Her website is www.KeysToAustin.com.