Learn More About Reverse Mortgages
Though you may have heard of a reverse mortgage or even known someone who took one out, you might not actually know what it is. So what does it mean when someone discusses a reverse mortgage?
A Loan Against Your House
When you take out a reverse mortgage, you're essentially loaning money against the value of your home that you already own. The phrasing "reverse mortgage" is pretty accurate, especially as it regards one of the most common payout methods, wherein the individual receives a sum of money every month from the loaning bank.
When you purchase a house, you're building what's called "equity." That means you're worth a certain amount of money; you have assets to offer people. When you own at least 50% of your home, which means you've paid off at least the other half of the value, you can borrow money against your home, which is probably your largest asset, to receive money.
Only Useful for Seniors
There are a few different ways to take out a loan against home equity, but a reverse mortgage specifically applies to those who are 62 or older. That's because it's especially tailored for seniors, who may be looking for a way to live a little more comfortably throughout their retirement years. Social Security Income (SSI) is rarely enough for people to live comfortably, which means borrowing against home equity can be a useful opportunity to supplement inadequate retirement savings.
The more equity you own, the more you can borrow through your reverse mortgage, which means that a reverse mortgage is especially helpful if you purchased a home when you were younger and have been living rent-free for some time. This way, you get additional money from your home value and you still get to live there.
Many Types of Payouts
When you take out a reverse mortgage, you can choose from a number of different ways to receive the payments of your loan. That includes a lump sum, which pays out your entire loan at once; an annuity, which pays out in equal monthly payments as long as you live there; term payments, which pay out for a set period of time; a line of credit, which allows you to borrow money only as needed; and mixes of equal monthly payments or term payments plus a line of credit.
When you take a counseling class for more information before you take out a reverse mortgage, the counselor will help you with more information on all of these payment options. Suffice it to say that they're a good resource to help you personalize your reverse mortgage for your own needs.
What are Potential Problems With Reverse Mortgages?
Though these types of mortgages can genuinely be great for many people, they do have their downsides. These are the most common issues you'll run into with reverse mortgages.
Lots of Fees
When you pay out a reverse mortgage, you have to sacrifice a lot of your home equity in exchange for fees. That's partially because the reverse mortgage usually lasts until you pass away or move for good, and the lender won't know how long that'll be. Although you'll get less money than if you had just sold the house, that might be worth it if you don't want the hassle.
Essentially, you're paying fees for the convenience of a reverse mortgage, and for not having to sell and move out of your home. That can be a good trade-off for some people, but it's just good to remember that you are paying those fees. It's up to you to decide if it's worth it.
There are quite a number of rules that govern reverse mortgages under both federal and state laws. Federally, you have to complete a counseling session that takes at least 90 minutes and explains to you all the pros and cons in much deeper detail than this; state to state, you might need to meet additional requirements and abide by different laws.
These legal restrictions might restrict how much the mortgage company can value your property, the maximum amount that the mortgage lender can pay you, and other information. Because you take that counseling session at the state level, you'll learn a lot of those restrictions at this session.
With a reverse mortgage, you are drawing from the home's potential value, which effectively reduces any profit upon resale of the home. So, if you give the home to your children or others in your will, its value will be less than it would have been before you took out a reverse mortgage.
Another drawback of a reverse mortgage is that if anyone lives with you, including a relative or a friend, that person could lose the home if you pass away or need to move into an assisted care facility for longer than a year. In some states, that might even include your spouse (though this has largely changed through various reforms). If you live alone and don't mind passing the house to the lending agency, this becomes a much more palatable option, though it's still a distinct tradeoff.
How Can I Get a Reverse Mortgage Safely?
With just this little bit of extra information, you now know more about how you can accomplish your reverse mortgage safely and smartly. What do you need to make it safer?
Get a Good Real Estate Agent
Real estate agents work differently for reverse mortgages than they do for finding a brand new home, and may not even go by the name "real estate agent" for this specific application. But either way, they do a similar thing --- they help you get the best bang for your buck regarding the reverse mortgage. You want the best deal, but so does the mortgage company. The real estate agent bridges that gap.
An agent that helps you with a reverse mortgage needs very specific skills because a reverse mortgage is distinctly different from a traditional mortgage. But it's also important that the agent isn't trying to scam you or otherwise take advantage of you, both painfully common things that happen to elderly adults looking to make financial decisions.
Find Other Opinions and Opportunities
A reverse mortgage isn't your only option here. The real estate agent can help you get more information about what else you might be eligible for. And it's a good decision to look into other ways you might be able to boost your current status. That may mean a different style of borrowing, or it may be something new altogether.
If a reverse mortgage interesting enough to you that you're genuinely looking into it, it might be a good idea to check out the reverse mortgage counseling course. It's short and generally only costs around $150, and the instructor will give you additional information on other routes that you could take. The instructor may even be able to give you very specific information for your exact situation, which can be well worth the course fee.
Check Everyone's Security Credentials
Yes, everyone's. Whether it's your real estate agent, the person you're dealing with through the reverse mortgage lender, or people calling you to ask about your reverse mortgage process, you should check to make sure they're all reputable, because unfortunately, a lot of them aren't. PeopleFinders' reverse phone lookup can absolutely come in handy here.
As a senior who's looking to make a significant monetary decision, the reverse phone lookup is an incredibly useful tool. Phone scammers routinely prey on seniors in this situation, and you need to know whether you can trust the people who are calling you. The background check is also a great way to verify individuals' identities, making it always easier to trust the people you're talking to about your financial future.