28 Feb Is a Reverse Mortgage Right for You? Assessing Your Options
Reverse mortgages are loans that some older adults can access with the money they’ve built up in their homes. Essentially, the borrower receives payments from their lender in exchange for a portion of the equity in their home. Borrowing against the home’s equity can be a good option for older adults who have built up significant home equity but may have limited income or savings to draw from.
There are different kinds of reverse mortgages, but the most popular type is the Home Equity Conversion Mortgage (HECM), which the government backs. Another type is a proprietary reverse mortgage, which private companies offer. The terms of these loans can vary, but generally, they allow the borrower to receive a one-time payment or a series of payments over time.
During the COVID-19 pandemic, reverse mortgages have become more popular because some older adults have lost money or don’t have as much income as they used to. In response to the pandemic, the government has changed the HECM program to make it easier for people to get these loans. For example, the appraisal process has become more flexible, requiring less paperwork to verify income and employment.
Despite the benefits of reverse mortgages, there are also some risks to consider. For example, the interest rates and fees might be higher than those on other loans, and the home’s value might decrease over time. Additionally, the borrower is still responsible for paying property taxes and homeowners insurance.
Some rules protect people who get reverse mortgages. New regulations from the Consumer Financial Protection Bureau (CFPB) were issued in 2015 to protect borrowers from predatory practices in the industry. These rules require lenders to assess borrowers’ ability to repay the loan, provide more transparent disclosures, and offer non-borrowing spouses more protections.
If you’re considering a reverse mortgage, it’s essential to understand the risks and benefits before deciding. One important consideration is the impact on your estate. When you die, your heirs must pay off the reverse mortgage, which could mean they have less money to inherit. It’s also essential to consider alternative options for accessing your home equity, such as downsizing or taking out a home equity loan.
To help older adults make more informed decisions about reverse mortgages, the National Council on Aging (NCOA) has launched a Reverse Mortgage Counseling program, which provides free, impartial counseling to older adults considering a reverse mortgage. This counseling can help borrowers understand the risks and benefits of a reverse mortgage and alternative options for accessing their home equity.
Reverse mortgages can be a helpful tool for older adults looking to access home equity. However, it’s essential to carefully consider the risks and benefits before deciding. If you’re considering a reverse mortgage, talk to a trusted advisor, do your research, and ensure you understand the loan terms before signing any documents.
Henry Chen – NMLS #327682
Mortgage Broker – Get Assured Inc.
“Providing More Than 30 Years of Real Estate Services”