Advantages of Reverse Mortgage Loans
Reverse mortgages are an option for seniors who are interested in enhancing their retirement by using their home equity as collateral for a FHA HECM loan. For some, the advantages of a reverse mortgage will easily outweigh the costs. It is important to do your research and discuss your options with trusted advisers and family members to ensure you have a full understanding of the advantages and costs.
The first step will be to determine your loan amount by using the age of the youngest borrower or eligible non-borrowing spouse, the lesser of the appraised value or FHA’s maximum claim amount, and expected interest rate. Once the loan amount is established, we need to pay off any liens that are currently on title and determine how much is left for you to use. We typically will see three primary scenarios. One scenario is where we see an abundance of equity in a property and help the client figure out how best to take the proceeds. Sometimes, the loan amount will just cover the mortgage payoff and the benefit is not having to pay your principal and interest payment. Other times, there’s not enough equity in the home to qualify for a reverse mortgage and the client will need to wait to build up more equity.
Reverse Mortgage Advantages
The advantages for a reverse mortgage may include:
- Quality of Life: A main advantage of a reverse mortgage is that it enables homeowners to access their home equity without making monthly mortgage payments of principal and interest. This may improve your quality of life by reducing your monthly budget, allowing you to make repairs or improvements to your home, allowing you to pay for rising medical or living expenses, or any other need you may have. You must continue to pay property taxes, homeowner’s insurance and any homeowner’s dues or maintenance must continue to be paid.
- Maintain Ownership of Your Home: An important advantage of a reverse mortgage loan for seniors is that you maintain ownership of your home as long as you or the last remaining borrower live there, and meet all other obligations of the mortgage. Once the last remaining reverse mortgage borrower or eligible non-borrowing spouse passes or no longer lives in the home as their primary residence, the estate must pay off the mortgage.
- Flexible Options: Depending on your needs and the product you choose, you can receive the money from your reverse mortgage in one of several ways including all at one time, in fixed monthly payments, as a line of credit, or a combination of these options.
- Social Security and Medicare Benefits are Not Affected: The loan proceeds that you receive from a reverse mortgage will typically not have any impact on regular Social Security or Medicare benefits. We recommend that you consult a qualified financial advisor or a representative of any specific programs you receive to ensure continuation of your benefits.
Reverse Mortgage Costs and Considerations for Seniors:
- Interest Rates & Fees: One of the disadvantages of reverse mortgages for seniors is that they are still a loan. Therefore, the loan is subject to interest and closing costs that apply. While these costs are often added to the overall balance of the loan and are not due until a maturity event occurs, it is important to realize that they can add up. Additionally, since you do not make a monthly mortgage payment on a reverse mortgage loan, the mortgage amount you owe grows over time. As your mortgage amount increases, the amount of equity remaining in your home may be reduced.
- Government Benefits That May Be Affected: The monthly payments that you receive from a reverse mortgage will not influence regular Social Security or Medicare benefits. However, if you are receiving Medicaid or other government sponsored programs, your benefits may be affected. We recommend that you consult with a qualified financial advisor or a representative of any specific programs you receive to ensure continuation of your benefits if you choose a reverse mortgage.
- Lack of Knowledge: The most significant problem with reverse mortgages for seniors is that individuals have an overall lack of knowledge of how a reverse mortgage works and the specific terms and limitations. Anyone considering a reverse mortgage must obtain independent HUD-approved counseling to discuss your options and other alternatives to increase your knowledge.
Is a Reverse Mortgage Right for You
Here at Sound Financial Mortgage LLC, we can help you determine your loan amount and understand how the advantages and costs of reverse mortgage for seniors will apply to your situation. For more information, email john@soundreverse.com or give us a call at (425) 427-9377
