Opting for a reverse mortgage is a major financial decision. You’ve got to make sure you know all the facts before you sign on the dotted line.
Definition
A reverse mortgage is a loan that allows you to turn a portion of your home’s equity into cash. So if you’re 62, need to come up with funds to take care of your medicine and hospital bills or don’t have enough to make the payments on your property, this loan can be a life-saver.
HECMs
According to the Federal Trade Commission, there are three types of reverse mortgages—the single-purpose, proprietary and the Home Equity Conversion Mortgage or HECM loan. The last one offers baby boomers a chance at improving their financial security during their retirement years.
How It Happens
In a traditional mortgage, you make monthly payments to a lender. With an HECM, though, the lender makes the monthly payments to you. With every payment you get, your debt increases and your home equity decreases. When you move out, fail to pay for your property taxes and homeowner’s insurance, or pass away, the loan must be repaid and the lending company takes the home. Many lending companies set a limit on a number of funds you can borrow, though, to ensure it doesn’t go beyond the appraised value of the home.
Payment Options
You can choose one or a combination of the following options:
* Single disbursement. This is usually available with a fixed-rate loan. While the interest rates are steady, it usually offers less than what you can expect from variable interest rates.
* Cash advances for a given period of time, or for as long as you live.
* A line of credit. You withdraw funds when and in the amounts you need, until you’ve used it up.
Interested? Explore your options carefully before settling on a decision. Consult a reverse mortgage expert to help you.
