If you are considering getting a reverse mortgage, you may have done some research or even know someone who has one. Getting a reverse mortgage is an excellent way for people 55 years and older to convert their home equity to cash that they can use for additional retirement funds, home improvements, or medical expenses. Reverse mortgages allow the homeowner to remain in their home during retirement and retain the title to the property. Instead of making monthly mortgage payments, the mortgage company pays the homeowner as an advance on the equity in the home. The money is generally not taxable and does not affect Medicare or Social Security benefits. A win-win, right? It can be. Here are 6 essential things to consider before getting a reverse mortgage.

THERE ARE COSTS

Just like a traditional mortgage, reverse mortgages have costs involved. As with most mortgages, you can expect to pay origination fees and closing costs at closing. There may also be some ongoing servicing fees that are charged by the servicing company to service the loan monthly. Depending on your lender and type of reverse mortgage, you may also have to pay mortgage insurance. Ask your loan officer before closing if you have any questions about the costs of your reverse mortgage. We take the time to explain these costs upfront and communicate any changes throughout the loan so these costs and fees won’t be a surprise at closing.

HOMEOWNER RESPONSIBILITIES

The homeowner is still responsible for some of the same things that most homeowners must do with any mortgage. Since property or real estate taxes are not included in the loan, the homeowner is responsible for ensuring that property taxes are paid. You must also obtain and pay for homeowner’s insurance and keep the coverage current. The homeowner must keep the property in good condition and make sure that it is maintained properly. Failure to do any of these requirements could result in the lender requiring repayment of the loan. Nonpayment of taxes, insurance, or failure to upkeep the property could trigger a maturity event with many mortgages, reverse mortgages included.

HEIRS COULD BE AFFECTED

If your equity is used up by the amount of money you draw from your reverse mortgage, the assets will be reduced for your heirs. Your heirs may purchase the home by paying off the loan if they want to retain ownership. Even if the amount owed is more than the appraised value, your heirs would only need to pay the appraised value to purchase the home because reverse mortgages are non-recourse loans. Be aware that if you want to bequeath the family home, a reverse mortgage must be repaid by turning it over to the lender, selling it, or paying off the loan. Consider if you were to pass away with a traditional mortgage still on your home and the balance due was more than the value of your home. Most banks want the full amount due for the loan and can go after your estate to pay off this debt. Getting a reverse mortgage could be a protection for your heirs in this case as reverse mortgages are non-recourse loans.

PROTECTION FOR SPOUSES

With some federally insured HECM reverse mortgages, even if your spouse did not sign the loan paperwork, they can usually remain in the home if you die. However, they will no longer receive payments or have access to any funds in the LOC since they are not on loan. The loan will not have to be repaid until the spouse dies, sells the house, or moves out. Nowadays when getting a HECM reverse mortgage, spouses who are not 62 or older can be included on the loan as a non-borrowing spouse which gives them the right to remain in the home as long as they maintain the terms of the loan and don’t trigger a maturity event. They will not have any access to any funds that were previously available in the line of credit before their spouse passed. For couples who have a non-borrowing spouse, they should consider refinancing their reverse mortgage when the spouse becomes 62 or older in order to allow them access to the full benefits of getting a reverse mortgage.

THINK ABOUT INTEREST

Some reverse mortgages offer fixed-rate loans, while others have variable rates. If your loan has variable rates, be aware that they will fluctuate with the market. Fixed-rate loans often require that you take your money all at once in one lump sum. The interest is not tax-deductible either until the loan is paid off.

NOT ALL REVERSE MORTGAGE COMPANIES ARE THE SAME

Some reverse mortgage companies may use high-pressure tactics to promote other financial products. Always look for knowledgeable, experienced, local reverse mortgage brokers that put your interests first and work to find the optimal program for you. Look for professionals familiar with your local market who offer you alternatives, so your reverse mortgage fits your needs. Our experts at Northwest Reverse Mortgage not only provide opportunities, but we also spend time with you, answering all questions and concerns about getting a reverse mortgage.

GETTING A REVERSE MORTGAGE WITH NORTHWEST REVERSE MORTGAGE

At Northwest Reverse Mortgage, our goal is to find the optimal solution for your financial security during retirement. Our loan officers not only help you obtain the reverse mortgage package that is right for you, but we also take the time to educate you and assist you in making the best choices. Check out our satisfied clients’ testimonials, and give us a call for a no-obligation consultation.

Image Source: Casper1774Studio / Shutterstock