Suze Orman on her CNBC show recently responded to a viewer question by stating that a reverse mortgage is a better option than selling stocks.
Cons of a reverse mortgage
Reverse mortgages have costs that include lender fees (origination fees are capped at $6,000 and depend on the amount of your loan), FHA insurance charges and closing costs. These costs can be added to the loan balance; however, that means the borrower would have more debt and less equity.
Income from reverse mortgages typically doesn't affect a senior's social security or Medicare eligibility and can be used as the senior desires. These benefits can take the financial burden off of a family and enable a senior's estate to pay for long-term care or living expenses when other means are not available.
AARP does not recommend for or against reverse mortgages.
If the balance owed on the loan is more than the home is worth, your heirs won't have to pay the difference. If your heirs sell the home, the lender will take the proceeds from the sale as payment on the loan, and the FHA insurance will cover any remaining loan balance.
No. When you take out a reverse mortgage loan, the title to your home remains with you. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs). The Federal Housing Administration (FHA), a part of the Department of Housing and Urban Development (HUD), insures HECMs.
There is no catch with a reverse mortgage. You just are not required to make payments on the loan until you leave the home so the balance rises instead of falling each month as it would if you were making payments. All borrowers should take the time to educate themselves thoroughly before obtaining a reverse mortgage.
Fixed Interest Rates:
As an example, the National Reverse Mortgage Lenders Association (NRMLA) reverse mortgage calculator lists an average HECM fixed rate of 5.060% for the month of December 2016. Actual rates available to borrowers will vary and are dependent on loan factors.
Yes. There are several kinds of reverse mortgage loans: (1) those insured by the Federal Housing Administration (FHA); (2) proprietary reverse mortgage loans that are not FHA-insured; and (3) single-purpose reverse mortgage loans offered by state and local governments.
A jumbo reverse mortgage is a program offered by private lenders that allows you to borrow more than the Federal Housing Administration's (FHA's) Home Equity Conversion Mortgage (HECM) loan limits. The “maximum claim amount” for 2022 for the HECM program is $970,800 for all parts of the country.
A reverse mortgage does not affect regular Social Security payments or disability benefits. However, if you are on Supplemental Security Income (SSI), any reverse mortgage proceeds that you receive must be used immediately. Funds that you retain count as an asset and could impact eligibility.
With the non-recourse aspect of reverse mortgages, the borrowers or their estate do not have to pay back more than the value of the home, even if the loan balance is higher. In these circumstances, the borrower (or estate) can grant a “deed in lieu” and walk away from the obligation of selling the home.
Yes, you can sell a house with a reverse mortgage. Your lender cannot force you to sell the home, but you are able to sell it at any time if you choose to do so. However, keep in mind that when you sell the home, your reverse mortgage comes due — and you'll need to pay off the loan balance, plus interest and fees.
A reverse mortgage works best for someone who owes little or nothing on the original mortgage and plans to live in the home for more than five years. "Do your research, shop around and talk with a federally approved housing counselor," Jason Adler, of the Federal Trade Commission, said.
The answer is yes, you can lose your home with a reverse mortgage. However, there are only specific situations where this may occur: You no longer live in your home as your primary residence. You move or sell your home.
If you're 62 or older – and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses – you may consider a reverse mortgage. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.
A Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage, is a special type of home loan only for homeowners who are 62 and older.
Unfortunately, however, you can't add a family member to an existing reverse mortgage.
What are the ongoing costs for reverse mortgages? Ongoing costs are added to your loan balance each month. This means that each month you are charged interest and fees on top of the interest and fees that were added to your previous month's loan balance.
You are not required to make monthly payments on the reverse mortgage because the loan balance doesn't come due until the final borrower moves out of the home, passes away, fails to pay taxes or insurance, or neglects to maintain the home.
Interest (including original issue discount) accrued on a reverse mortgage isn't deductible until you actually pay it (usually when you pay off the loan in full).
Reverse Mortgage Age Requirement: When to Get a Reverse Mortgage Loan. When is the best time to get a reverse mortgage loan? If you are at least 62 (the minimum age for applying), the best time might be now. That's because, included in a reverse mortgage's many payout options is the reverse mortgage line of credit.
Reverse mortgage borrowers are allowed to temporarily leave their house for up to 12 consecutive months, for medical reasons. After this period of time, the borrower must return to the home and live in it as their primary residence, or the loan becomes due.
Options for Your Heirs
Pay back the loan. Generally, with a HECM, the heirs may pay the lesser of the mortgage balance or 95% of the current appraised value of the home. FHA insurance will cover the remaining loan balance. Sell the home and use the proceeds to repay the reverse mortgage.
A reverse mortgage is commonly paid back by using the proceeds from the sale of the home. If the loan comes due because you've passed away, your heirs will be responsible for handling the repayment and will have a few options for repaying the loan: Sell the home and use the proceeds to repay the loan.