Reverse mortgage to finance your home

If you are over the age of sixty-two and are looking for money to pay off your current mortgage, fund home improvement, pay for healthcare expenses, or supplement your retirement income, consider a reverse mortgage. This allows you to turn some of the home equity into cash without having to sell it or pay additional monthly bills.

There are different types of reverse mortgages. One of them is the single-purpose reverse mortgage, which is the most affordable option. This can only be used for a purpose determined by the government or a non-profit lender. Low- and middle-income homeowners may qualify for this loan. There are also the Home Equity Conversion Mortgages, or HECMs, backed by the US Department of Housing and Urban Development, and the Proprietary Reverse Mortgage, backed by the companies developing them.

HECMs and Proprietary Reverse Mortgages are more expensive than traditional home loans and the upfront costs are high. You can especially consider this if you plan to stay at home for a short time or to borrow a small amount. These loans are widely available, have no medical or income requirements, and can be used for any purpose.

Before applying for an HECM, you must consult an independent counselor from a government-approved housing counseling agency. Several lenders that offer proprietary reverse mortgages also need you for advice. He or she will explain the financial implications, costs, and alternatives of an HECM to you, and should be able to help you compare the costs of different types of reverse mortgages. The amount you can borrow from an HECM or proprietary reverse mortgage depends on a few factors, such as your age, the type of mortgage, the estimated 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, the more money you can get.

Here are some facts about a reverse mortgage to keep in mind:

1. Generally, lenders charge a mortgage insurance premium (for government-insured HECMs), an incorporation fee, and other closing costs. They can also charge service fees for the life of the mortgage. The law currently mandates a HECM reserve for mortgage origination fees.

2. While it is 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 increases over time. Interest is calculated on the outstanding amount and added to the monthly amount owed. This means that as the loan funds are advanced into the interest accruing on the loan, your overall debt will decrease.

3. A reverse mortgage could use up all or part of your home equity and leave some assets for you and your heirs. Most of these mortgages have a recourse clause that prevents you or your property from owning more than its worth.

4. You are responsible for insurance, property taxes, fuel maintenance, utilities, and other costs as you retain ownership of your property. If you fail to pay these 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 loan amount means higher costs. The key to determining the differences between an HECM and a home loan is to compare their benefits and costs side-by-side.

6. You have the right to cancel the reverse mortgage deal within three days without giving any reason, less a penalty. You must write a registered letter to the lender asking for a confirmation or return receipt so that you can document that the lender received it on a specific date. Keep copies of your correspondence. After termination, the lender has twenty days to repay the amount you paid for the finance.

Remember that no matter what type of reverse mortgage you are considering, you should understand any terms that could make the loan due and payable.