Are Reverse Mortgages Safe
Anyone that’s ever considered a reverse mortgage, may have wondered, “ Are reverse mortgages safe “. Or, ” are reverse mortgages a good idea?”. Since a home is normally the biggest asset many Americans will ever have, that is actually a really GOOD question. That said, let’s dive in.
A reverse mortgage is also known as a HECM which is an acronym for Home Equity Conversion Mortgage. This type of reverse mortgage accounts for 99% of the reverse mortgage transactions that are funded on an annual basis. Hence, that’s what we’re talking about for the most part in this article. A HECM / Reverse Mortgage is a very safe FHA insured loan that is available to homeowners aged 62 and up. This type of loan is intended to help aging homeowners age in place. This also means it can only be done on your primary residence (as of September 2019).
A Few Relevant Facts About Reverse Mortgages
- There is no monthly payment to the bank required for as long as you live or for as long as you live in your home.
- You still own your home, just like a regular loan. This fact also means that you will need to maintain homeowner insurance and your property taxes and HOA if applicable.
- There are several ways to get the money on a reverse mortgage if there is money left over after paying of the traditional loan you have.
- You can get a lump sum of money.
- A HECM borrower can get monthly payments for life OR for a predetermined amount of time.
- Reverse mortgage borrowers can leave the money in a line of credit (which grows over time).
- Your Home can still be left to your kids, grandkids, etc..
- As a HECM borrower, you AND your heirs would never have to worry about being on the hook for a debt greater than the value of your home. If you (or your heirs) ever owed more than what the home was worth at loan maturity, FHA would pay the shortfall.
All in all, reverse mortgages are safe vessel to use as part of your retirement strategy. However, NO financial tool or loan if perfect, hence the next section will be about the Reverse Mortgage Cons.
Reverse Mortgage Imperfections to Be Aware of:
- Some of the bigger reverse mortgage lenders can tend to charge more fees than other smaller lenders or brokers.
- Since you still own the home when you do a reverse loan, you need to maintain taxes, insurance, etc.. Yes, we mentioned this already, BUT this means that if you don’t maintain these things, your home can go into foreclosure. Just keep up on those sort of things and avoid any issues.
- Money that you receive COULD impact certain benefits like Medicaid and Supplemental Security Income. The reverse mortgage funds do NOT, however, impact Medicare and/or regular Social Security Income.
- Only the people ON the loan paperwork can live in the home for the rest of their lives without making a payment to the bank. This used to be an issue, but FHA cured this problem.
- Since you don’t make payments on a reverse loan, your loan balance grows.
- The costs associated with a reverse mortgage can be higher than conventional loans. That being the case, it’s not a good idea if you intend on selling the home shortly after you do the loan. In other words, it’s not the best short term solution.
Are Reverse Mortgages Safe OR Are Reverse Mortgages Bad – Final Synopsis
As you can see, there are many things to consider in terms of a reverse mortgage. As long as you consider all the variables for yourself, a reverse mortgage can be a great financial tool. Are reverse mortgages safe? They are, but you just need to be well informed to make the best decision for yourself and your estate.
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