With unemployment rising and home values falling it may seem odd that reverse mortgages are so popular. In fact, a reverse mortgage can make a lot of sense for those who have acquired real estate equity over time and now have a a need for cash or income.
If you’re at least age 62 and own your home you may be able to qualify for a reverse mortgage. Any existing financing on the property would have to be paid off, but that may be attractive because you can go from a loan that requires monthly payments to financing which does not demand a monthly check.
In effect, a reverse mortgage is a way to withdraw equity from an asset (your home) without selling, moving or refinancing with a new forward loan. That’s a combination which is attractive to a lot of people. HUD says that it’s already insured more than 105,000 reverse mortgages through the FHA this year.
So what is that people like about reverse mortgages?
One issue has to be the application process. Basically, income and credit don’t count because the mortgage is instead based on asset values. In other words, the equity in your home is a storehouse of value that can be accessed even when times are tough.
But the other aspect which makes reverse mortgages attractive is that you can stay in place, you don’t have to move. That’s important because moving is disruptive, expensive and a quality-of-life change that can be tough to handle.
Lastly, there is the matter of repayment. A reverse mortgage is only repaid when you move, sell or pass away. There are no required payments for principal and interest.
Steps to Take
What’s the best way to get a reverse mortgage?
Since virtually all reverse mortgages are insured by the FHA the programs are the same. The question is how much you will pay — and costs vary. For this reason it make sense to take several steps:
First, be a good consumer — speak with a number of lenders.
Second, be wary of deals that are too good to be true or that magically require you to use the money from your reverse mortgage for another product or service.
Third, protect your interests — sign nothing until you’ve spoken with an attorney who specializes in elder law.
Fourth, speak with family and friends. Ask for their ideas and opinions.
Fifth, look into the new HECM Saver from, an FHA-insured reverse mortgage. The advantage of the HECM Saver is that the up-front mortgage insurance premium is just about zero instead of 2 percent of the loan amount. The drawback is that you may not be able to borrow as much with a given level of equity.
You have options. A reverse mortgage is not for everyone. If it’s for you, fine. If it’s not for you, that’s fine also. Act in a way that’s best for your personal preferences — and your finances.