If you are considering a reverse mortgage (also called a home equity conversion mortgage), there are several factors you should consider. There are both advantages and disadvantages to this type of mortgage which is certainly not meant for everyone.
A reverse mortgage is only for those who have already invested in their home by paying their mortgage through the years or having received full ownership of the home by other means. It allows the bank or reverse mortgage company to pay you mortgage payments, slowly gaining financial ownership of the house. This is all done while you are allowed to remain in the house.
One of the obvious benefits of a reverse mortgage is that it allows you to access the money you have put into your house without having to leave your house behind. This money can be used to maintain the household or provide for extra income to live the life you want.
Because you are remaining in a home that is becoming less and less yours, there are higher fees associated with this type of loan than others. There are also restrictions on how much equity you can receive, so that this is not an unlimited source of income.
The size of the payments you can receive each month is based on how long you wish to receive them. The smaller the payments you receive, the greater the number of years that you can receive these reverse mortgage payments.
If you are considering a reverse mortgage, know that your heir will have to pay off that loan in order to receive the house. Otherwise, the house will be sold and your heir will receive the balance of the house's value after the appropriate money is given to the lender. If the house itself is an important family asset, you may be limited the potential that someone in your family will be able to retain it, as they must qualify and be able to afford to make the loan payments to keep the house.
To sort out the benefits and disadvantages of a reverse mortgage for your situation, it is best to talk to a HUD-approved reverse mortgage counselor. This type of counselor is well versed in the reverse mortgage process and will be able to apply their knowledge to your situation.
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