Is a Reverse Mortgage Right for You?
Do Your Research Before Taking a Reverse Mortgage Loan
Are you considering a reverse mortgage? You may have heard advertisements suggesting a reverse mortgage to provide funding to take a trip or to meet some other non-essential non-housing goal. A reverse mortgage may be a great resource to support the ability to remain in your home for as long as it reasonably possible and to live independently in the community.
If you are 62 or older and are looking for some extra income to supplement your retirement income to meet living expenses, you may have considered a reverse mortgage. A reverse mortgage can provide a reliable supplemental source of income by tapping the equity in your home and allow you to remain in your home. But, taking a reverse mortgage is a major decision and once it is initiated, it changes the nature of your relationship to your home. There are a few key points to understand about a reverse mortgage loan.
A Reverse Mortgage is a Loan
A reverse mortgage is a loan product that allows you to convert a portion of the equity in your home into cash without having to sell your home or make payments on a second mortgage. Because it is a loan, there are fees, interest rates, product rules, and homeowner obligations as a result of receiving the funds. The homeowner receives a loan from the equity of the home at a specific interest rate, higher the interest rates reduce the amount of money a homeowner may receive. The interest charges accrue with the house acting as the collateral to secure the loan. There can also be a loan origination fee in addition to costs for appraisal other fees associated with taking out a mortgage.
Is there just one type of reverse mortgage?
No. Actually, there are three types of reverse mortgages offered by different kinds of lenders. The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage loan that is insured by the federal government. Private lenders also offer reverse mortgage loan products. The interest rate is generally lower on government-insured HECMs than what is available on other reverse mortgage products. Interest rates fluctuate over time, so it is important to monitor the interest rates and to secure your loan at as low an interest rate as possible.
How do I learn more?
Get counseling from HUD. This is your home and it is important to take time to fully understand the details about a reverse mortgage. Housing and Urban Development (HUD certifies) reverse mortgage counselors and requires pre-loan counseling prior to obtaining a reverse mortgage. Before committing to one, you will want to check out each type and make sure you understand all of the details. Seek counseling to be sure you truly understand “the fine print.” To help you make a more informed decision, consult the Federal Trade Commission’s information on Reverse Mortgages.
Already started the loan process for a reverse mortgage?
By law you have a right to cancel the loan within 3 days for reverse mortgages against your existing home. Learn more about this on the HUD website here.
–Written by Dr. Carolyn Bird, PhD, AFC, RFC
Associate Professor and Family Resource Management Specialist
N.C. Cooperative Extension