A Professional Overview of Reverse Mortgages

A Professional Overview of Reverse Mortgages

posted in: Mortgages

Photo Credit Pexels

Most of us will get to age 62 and will have expenses that earlier in life we didn’t have. Rising medical costs, a drop in income due to retirement or disability, or repairs to the home are very commonplace so, a reverse mortgage may be the solution you are looking for to solve these problems. The loan officers at 7th Level Mortgage have been trained in these loans. A reverse mortgage permits you to tap into the home’s equity, but instead of YOU paying back the mortgage company, the mortgage company cuts you a check. This money is usually tax-free, but, I advise you to consult with your loan officer and/or your tax consultant regarding the potential tax benefits or liabilities. Most importantly, you do NOT lose equity in or your rights to the home because you are obtaining an RM.

There are 3 types of reverse mortgages. They are single-purpose, proprietary, and federally insured. Single-purpose reverse mortgages are offered by state and local government agencies and non-profit agencies. Proprietary reverse mortgages are, like federally insured reverse mortgages are offered by private lenders.

Fees: For clarity, you MUST be aware that there ARE fees and other costs associated with obtaining these loans. The typical fees are origination, servicing, and for the private RMs mortgage insurance premiums, much like traditional FHA loans charge.

Interest: You will owe more over time, because the interest that you would have paid, had you had a traditional loan is added into the back end of the mortgage.

Rates: Reverse mortgages are not a fixed-rate loan program. The rate can and will adjust over time based on the movements of the rates of a financial index. You can qualify for a fixed rate, but the amount you will receive as a lump sum will be lower than what you may qualify for with a variable rate loan.

Other Fees: You have to pay for all the other items associated with home-ownership. You must keep your taxes current; have homeowners insurance, utilities, fuel, and any other maintenance items that are required to keep the home in good operating order. If you fail to meet these obligations, your lender may accelerate the loan and require the loan to be paid back immediately. Keep in mind lenders are not in business to acquire property, they are in the business of lending money and making money on closed loans. If you have a hard time keeping your property taxes up to date, the lender may require a set aside amount, much like a traditional escrow account, to pay the property taxes. You still have to pay for homeowners insurance and any other fees listed associated with the home’s maintenance.

What Happens After You Pass Away?: Some people structure the loan in a way where the spouse is not on the mortgage. SO, if you structured it this way and he or she didn’t sign off on the paperwork, your spouse may continue to live in the home. He or she would still have to pay the property taxes, homeowners insurance premiums, and all the other items with maintaining the home. However, in the case of a home equity conversion mortgage, he or she will not able to draw any more money from the home’s equity. This is because he or she wasn’t part of the loan agreement at its’ inception or closing. Consulting with your loan officer at 7th Level Mortgage is what makes the most sense so you and your spouse can get the maximum benefit from the program.

In the next blog, I will provide more information about the three types of reverse mortgages, how the application process works with 7th Level Mortgage, and a detailed list of the fees and expenses you can expect for each type of reverse mortgage. Because some probate issues will arise after you have passed on, look for the information regarding your heirs, their rights if probate becomes an issue, and how you can protect their interests.  I urge you to compare and contrast the differences between a cash-out refinance for conventional conforming loans, FHA cash-out refinances loans, home equity loans, HELOCs as well as the reverse mortgages I just told you about. From there, the loan officer at 7th Level Mortgage can help you with your selection, take the application, and advise you through the process up to closing.