Ryan’s Mortgage Blog:
I was asked about a Reverse Mortgage the other day so I thought I would share this with you guys. These programs can be very difficult to understand because there are so many details. The process can be so puzzling, federal regulators usually require people to receive a professional one-on-one counseling session before you can be approved for a reverse mortgage.
I will try to give you a brief overview so you’ll understand what it is going on when you see an ad or person offering a mortgage where the lender pays you, instead of you paying them. Let me start by saying reverse mortgages are only good for a very, very small percentage of homeowners. Actually, they are heavily regulated so only a certain demographic of people qualifies for them. These mortgages are for people who are at least 62 years old, and it must be their primary residence. There are other small specifications, but those are the main ones.
Basically the lender starts to “buy” the house from you in form of a lump sum, a monthly advance, or a line of credit, all while you continue to live in your home. I use buy loosely because they are not actually buying the home, they are buying (lending from) the equity built up in the home. Once the borrower moves, sells, refinances, or dies, the loan must be paid off. In the case of death, the lender does not take title to the home, but the heirs are required to pay the loan. The debt is usually paid by selling the home or refinancing the property. So if you wanted to leave the house to the kids for their future, you better think twice on this one.
This mortgage is set-up to help older, retired adults pay unforeseen expenses, medical bills, debts, etc…especially if their retirement has run out. Reverse mortgages use up all the equity in the home, so you or your heirs are left with a hefty mortgage when all is said and done. It is a rising-debt loan. The interest is added to the principal loan balance each month, and the amount you owe increases over time as the interest compounds.
I only recommend this type of mortgage if you have exhausted all other sources of income. This is a decision that involves you and your heirs so I greatly suggest you consult with your family first as well as an attorney and financial advisor. If you have any mortgage related questions feel free to call me at 805-540-0866 or email me at Ryan@GoMetroLoan.com. Thanks for reading and I hope you have a great St. Patty’s Day!!