A reverse mortgage is a loan for. One of the biggest advantages of a reverse mortgage is that you are not required to make payments while you stay in your home. However, once you leave your home for more than 12 months, sell it or die, the outstanding loan must be repaid along with any interest that normally accrues from the sale of the home. For those who have built up home equity over time or who have paid off their mortgage, reverse mortgages might make sense.
Under the right circumstances, reverse mortgages can help seniors stay in their homes and at the same time provide them with additional funds to cover living expenses If there is a balance of a home equity loan or a home equity line of credit housing (HELOC), for example, or tax liens or judgments, these must first be paid with the proceeds of the reverse mortgage. Moving to a nursing home or assisted living facility for more than 12 consecutive months is considered a permanent move under reverse mortgage regulations. Reverse mortgages don't expire until the homeowner dies or decides to sell the home, giving families plenty of time to decide what to do with the home in the future. Private reverse mortgages have their own qualification requirements that vary by lender and loan program.
While these loans may be the easiest to obtain and the quickest to finance, they are also known to attract unscrupulous professionals who use reverse mortgages as an opportunity to scam unsuspecting seniors out of their home equity. And as you suggest, a reverse mortgage might also make sense, as long as you understand exactly what you're getting into and how it relates to your larger financial picture. A reverse mortgage can be a valuable problem-solving tool for seniors who understand how these loans work and have a plan to use their net worth. During the reverse mortgage financial evaluation that is part of the HECM application process, potential lenders will determine if you have the ability to meet these obligations.
The counselor should also explain possible alternatives to an HECM, such as government and non-profit programs, or a single-purpose reverse mortgage or property. Retirement-age homeowners with health problems might consider a reverse mortgage to raise money for medical bills. If you are 62 or older and want money to pay your mortgage, supplement your income, or pay for health care expenses, you may want to consider a reverse mortgage. If you decide you need improvements to your home and think a reverse mortgage is the way to pay for them, look up information before deciding on a particular seller.
When the homeowner moves or dies, the proceeds from the sale of the home go to the lender to repay the principal, interest, mortgage insurance, and reverse mortgage charges. That's where reverse mortgages come into play, especially for retirees with limited incomes and few other assets, but also for retirees who want to diversify their income and reduce investment risk, sequence risk and longevity risk. Unlike a term mortgage, the type used to buy a home, a reverse mortgage doesn't require the homeowner to make any loan payments. You can also talk to your financial advisor about using a reverse mortgage as a viable financial tool.