First, let us tackle what reverse mortgages mean. It goes like this: As opposed to making monthly payments to your bank, the lender sends money back to you instead. Meaning, the stream of payments goes the opposite direction from what borrowers are used to. Reverse mortgages give retirees a simple way to tap their home equity without having the risk that conventional mortgages have or having to sell their property and move to a cheaper housing.
No access to the full equity. Reverse mortgages only provide for a part of your home equity. The maximum mortgage amount is computed by the FHA based on the age of the youngest borrower, the appraised value of your home, and the prevailing interest rates. It is essential to remember that borrowers have to pay the costs of a reverse mortgage such as the mortgage insurance premium and charges from a third-party lender.
They provide several payout options for you to tap your home equity. Different payment plans are available. For instance, one type of payment involves taking equal monthly payments that run as long as the borrower is alive and lives in the home as a principal residence. Another is a flexible line of credit, which gives you the choice on how much and when to take money out based on the maximum amount of the line. A fixed term of years of payments is also available; after the specified term of payments, you will stop receiving monthly payments even if you are still living in the home.
A reverse mortgage can lose your home. Although reverse mortgages do provide some level of protection to homeowners, they still require you to keep up your end of the bargain. In other words, you need to be responsible enough to do your part; there are “dire” consequences.
Paying for utilities, homeowners insurance, real-estate taxes, as well as flood insurance should not be taken for granted by borrowers. Of course, lenders can take appropriate actions if borrowers disregard their responsibilities such as those mentioned above.
It is imperative that you seek help from a mortgage professional to understand the intricacies of reverse mortgages and to avoid complications.