This is a guest post that I’m hosting to pass on some valuable information about what you need to watch out for when you apply for a reverse mortgage. This is invaluable information for anyone to think about as you get older, especially if you have a family to care for. It’s also useful for those who are retired, so if this isn’t for you yet, pass this information on to your parents or grandparents!
Reverse Mortgage Applications: What to Watch Out For
If you have retired and your income has decreased you now belong to a large club of retirees who are long on time but short on funds to enjoy it with. You have probably heard of reverse mortgages. They are touted as retiree-only loans that can rescue you from the loss of income that comes with retirement. Well, they are definitely worth considering and can be quite beneficial to, but only when you know what to watch out for.
The Primary Advantages of a Reverse Mortgage
One of the primary advantages of a reverse mortgage is the “free spending” capability that comes with such an agreement. Signing a reverse loan contract does not trigger a sea of unending mortgage bills to pay. Nor does it start a clock ticking in the same way signing a regular home mortgage contract does. While a traditional mortgage must be repaid by a specific date, you can extend a reverse mortgage practically as long as you want. You just have to agree to keep living in the home and meeting other requirements, such as paying your property taxes.
Another advantage of a reverse mortgage is you pick when and how you collect the funds from it. The total amount you can borrow is not within your control, but you can ask for that total amount all at once or a bit at a time. If the latter, you can then choose to receive each equal bit on a schedule or pull amounts out on your own when you need them using a credit line.
Take Care Selecting a Reverse Mortgage Source
Reverse mortgage scams do exist, so it is important to choose your source wisely. You also need to understand the subtle differences between legitimate reverse mortgage sources. For example, your local bank is known as a proprietary lender. That is a private banking institution. In contrast, certain government agencies offer similar loans, but they have a few basic differences. For example, government home equity conversion mortgages are insured federally. Proprietary loans are regulated to some degree by federal laws, but they are not similarly insured.
You also need to choose a source offering the reverse mortgage size you want. There are reverse mortgages and there are jumbo reverse mortgages. Jumbo reverse loans offer borrowing caps that are higher. That makes them more appropriate for properties with higher values.
Interest Rates Are Also Major Factors in Reverse Mortgage Selection
Another issue to watch out for when selecting a reverse mortgage is interest rates. Interest is of particular importance due to the long-term loan agreement. A standard home mortgage does not accumulate as much interest because it does not stay in effect for such a long period of time. The interest rate caps on reverse mortgages are governed by certain laws, but there can be variations in interest rates offered within those limits. The laws are also subject to change.
When You Cannot Get a Reverse Mortgage
Another thing you obviously need to know about a reverse mortgage is when you cannot get one. Typically, you cannot get one if you are under the age of 62. You also cannot get one if the property in question is not the house you currently live in. Nor is the home eligible if it is a large apartment complex, even if you own that complex.
Using a Reverse Mortgage to Get the Relief You Need
After taking all of the above into account and talking to a reverse mortgage counselor, you will have a clearer picture of what a reverse mortgage means. Assuming you are agreeable to the limitations of one, such as being unable to switch residences, a reverse mortgage can easily help you get the relief you need. It can even help you rid yourself of a traditional mortgage, if you already have one. So take the time to carefully consider it. It might make your retirement a breeze.