Reverse mortgages are often touted as an excellent option for older homeowners who need access to extra funds. However, like anything else in life, there are both benefits and drawbacks associated with taking a reverse mortgage out. In order to make a choice that is financially sound and viable for you, you will need to do careful research before making your decision. Here are five things that you should know about reverse mortgages to get you started.
Are You Eligible?
The first thing you should do is figure out whether or not you’re eligible for a reverse mortgage. According to the U.S. Department of Housing and Urban Development, reverse mortgages are offered to homeowners who are 62 years old or older. You must have already paid off your mortgage or paid down most of it already. Finally, you need to be living in that home at the time you apply.
Do You Own Your Home?
You won’t need to worry about the bank owning your home if you take out a reverse mortgage. This is one of the bigger fears that homeowners may have, but it’s fortunately an unfounded one. There are some restrictions on your home ownership if you take out this type of loan, though. For example, you won’t be able to lease your house. You need to be the primary resident and occupy it full time.
Pay Attention To Interest
You may not be making monthly payments with a reverse mortgage, but that doesn’t mean you won’t have any interest. In fact, since you aren’t making those payments during the life of the loan, your interest will build up. Generally speaking, the interest for reverse mortgages is roughly the same as interest rates for normal mortgages. This means that the debt will continue to rise as you stay within your house. In some cases, the interest rate debt that you accrue can actually grow to outweigh the equity in your home. In addition to interest rates, you will also be paying for homeowners insurance, as well as the other associated costs of home ownership. This can add up quickly and become a financial burden.
Go With A Trusted Source
In order to get a reverse mortgage approved, you need to go through a counseling session first. With trusted sources like the American Advisors Group, you are able to complete your application and file with minimal hassle. You can also discuss your reverse mortgage with a financial planner or possibly a lawyer in order to get extra perspectives. AAG Reverse mortgage lenders are able to work with your needs and create something that should be suited to your own specific lifestyle, situation, and wants. Make sure that you only go with sources that are certified; those who aren’t could be a part of scams.
Beware Of Scams
Reverse mortgage scams can and do happen, and even reverse mortgage counselors and lenders can’t catch every scheme. Reverse mortgage scammers will usually try to trick you into going for these programs in order to steal the money from you after you have access to it. Fraudulent contractors, for example, may encourage you to take out a reverse mortgage in order to help pay for projects that they have overcharged for. Another type of scam involves lawyers approaching to fix a home in foreclosure for a fee, but disappearing after receiving the money. Keep a careful eye on everyone involved in the transaction as you move forward with your reverse mortgage. Let your lender, loan servicer, or mortgage counselor know if you suspect that something is up.
Reverse mortgages aren’t necessarily the fix everyone is looking for. However, there are still many benefits and it could be the right option for you, depending on what your research turns up.