Five Tips Before Considering a Reverse Mortgage

Reverse mortgages are known for allowing senior homeowners aged 62 or older stay in their homes. However, this comes together with excessive fees and limitations. Before considering whether or not to get a reverse mortgage, the following are five tips recommended by experts.

First, delay the timing of the loan because by doing this, you can borrow more against your equity and save more in terms of interest. Another way that you can save on interest is when you begin receiving payments. Moreover, there is more accumulation of interest if the loan period is longer.

Second, be aware of the different types of reverse mortgages. In general, there are three categories: Home Equity Conversion Mortgages (HECMs), which are backed by the federal government; proprietary reverse mortgages, which are basically private loans; and single-purpose reverse mortgages, which come together with limitations in terms of what you can spend the money on.

Third, assess the fees and rates. Reverse mortgages charge a lot of fees, for instance, origination fees, costs for closing and servicing the loan, premium for insurance, and interest rates.

Fourth, avoid lump sum payout. Taking as much money at once results to a situation where homeowners have to handle the money properly, and at the same time still paying for property taxes, insurance, and other costs. If the homeowner fails to pay, the home can be lost to foreclosure. Moreover, the homeowner can end up paying fees that are 5 percent more than those who don’t take the money.

Fifth, look for alternatives. One option is to sell the home because you can draw all the equity you have built up, unlike in reverse mortgage, where you only receive a portion of the equity since you have to pay for fees and interest. Another option is to sell the home to relatives and then renting it back so that it stays within the family.

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