Should Seniors Consider A Reverse Mortgage Now?
(SENIOR SAVEDMassive job losses, a volatile stock market and low interest rates caused by the coronavirus pandemic have prompted many cash-strapped retirees to consider a reverse mortgage. But there is a lot to consider to be sure this is a good option for you right now.
A reverse mortgage is a unique type of loan that allows elderly homeowners to borrow money against the equity in their home (or condo) that does not have to be paid off until the owner dies, sells the house or moves for at least 12 months.
At this point, you or your heirs will have to repay the loan plus interest and accrued charges, but you will never owe more than the value of your home.
It’s also important to understand that with a reverse mortgage, you, not the bank, own the home, so you still have to pay your property taxes and home insurance. Failure to pay them can result in foreclosure.
To be eligible, you must be 62 years of age or older, own your own home (or owe only a small balance), and currently live there.
You will also need to undergo a financial assessment to determine if you can afford to continue paying your property taxes and insurance. Depending on your financial situation, you may need to place part of your loan in an escrow account to pay future bills. If the financial assessment reveals that you cannot afford your insurance and taxes, and you have enough money left to live on, you will be refused.
About 95 percent of all reverse mortgages on offer are home equity conversion mortgages (HECMs), which are insured by the FHA and offered by private mortgage lenders and banks. HECMs also have home value limits that vary by county, but cannot exceed $ 765,600.
The amount you can actually get with a reverse mortgage depends on your age (the older you are, the more money you can make), the value of your home, and the going interest rates. In general, most people can borrow between 50 and 60 percent of the value of the home.
To estimate how much you can borrow, use the Reverse Mortgage Calculator at ReverseMortgage.org.
To receive your money, you can opt for a lump sum, a line of credit, regular monthly checks, or a combination of these.
Be aware, however, that reverse mortgages don’t come cheap. HECM loans require an upfront mortgage insurance payment of 2%, plus an additional 0.5% annual fee, in addition to origination fees and lender fees. Any amount you borrow, including these fees and insurance, bears interest, which means your debt increases over time.
For more information, read the National Council on Aging’s online brochure Use your home to stay home at NCOA.org/home-equity.
Also note that because reverse mortgages are complex loans, all borrowers should seek advice through an independent HUD-approved counseling agency before taking on one. Most agencies charge between $ 125 and $ 250. To find one near you, visit Go.usa.gov/v2H or call 800-569-4287.
If you have a short-term need for cash, there are other options you should consider. For example, many low-income seniors don’t realize they qualify for the Working Income Tax Credit, a refundable tax break that can earn you money. You can also use BenefitsCheckUp.org to search for financial assistant programs you may be eligible for.
Another possibility is a regular home equity loan or a line of credit. This type of borrowing requires you to make payments, and lenders can freeze or lower line of credit limits, but borrowing costs are much lower. ISI
Send your questions to seniors to: Savvy Senior, PO Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to NBC today show and book author The wise elder.