Reverse Mortages Pro’s & Con’s

REVERSE MORTGAGES

Is It Right For You?

They say youth is wasted on the young.  Simply because as we get older we become wiser in our lives especially with money decisions.  With youth comes ambition and a resourcefulness that alludes us as we get older.  Its not very long after growing up that we are faced with the day to day challenges that job’s, kids, school etc., brings.  Our hopes in midlife are to live a long healthy adult life, long enough to see our kids succeed with the lessons we have taught them.

But what happens when we get older and the cost of living keeps going up?  Increased gas prices, insurance, inflation and the cost of living is sky high at the moment and it seems that everyone is feeling the pinch.  For many these days, a social security check, a small retirement fund and or savings will not fulfill the financial burden of retirement. Those aged 62 years or older can seek other forms of financial help in the form of a Reverse Mortgage.

What is a Reverse Mortgage?  A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash; FHA’s version is dubbed Home Equity Conversion Mortgage (HECM). The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgageHECM borrowers do not have to repay the HECM loan until the borrowers no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

But upon retirement what happens if your equity rich and your monthly cash flow is low?  The reverse mortgage could be an ideal solution for you. The reverse mortgage will give you an extra income for as long as you live in your house and you will be able to take cash from your home without making anymore payments.

However, it is important you consider both the pro’s and con’s of the reverse mortgage before making a decision:  The PRO’s include; no monthly payment due until the homeowner moves, passes away or sells the home.  A good credit rating and income is not apart of the qualification process, this means it is easy to qualify for a reverse mortgage.  Regardless of interest rates, you will never need to pay back anymore more then the value of the house.  If you make your home your primary residence, you can receive the reserve loan payments for as long as you live in the property.

The CON’s are high repayment costs.  Too much income for low-income seniors will mean they are over the allowable limit for liquid assets.  Reverse mortgages may not allow you to have access to all your equity, or even most of it. 

You may be asking yourself what are the differences between a reverse mortgage and a home equity loan?  With a second mortgage, or a home equity line of credit, borrowers must have adequate income to qualify for the loan, and they make monthly payments on the principal and interest. A reverse mortgage is different, because it pays you – there are no monthly principal and interest payments.  Will we have an estate that we can leave to heirs?  When the home is sold or no longer used as a primary residence, the cash, interest, and other HECM finance charges must be repaid. All proceeds beyond the amount owed belong to your spouse or estate. This means any remaining equity can be transferred to heirs. No debt is passed along to the estate or heirs.

Should you have more questions regarding the Reverse Mortgage please call a HECM counselor (800) 569-4287 toll-free, for the name and location of a FREE HUD-approved housing counseling agency near you. 

Chris Vigil is the Broker/Owner of Chris Vigil Real Estate in Whittier and a licensed Real Estate Appraiser. He can be reached at 562-945-4422, chris@chrisvigil.net or www.chrisvigil.net

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