Should You Go Forward With a Reverse Mortgage?
By: Dona
DeZube Article From HouseLogic.com
Big lenders in the reverse mortgage
business — Wells Fargo this month and Bank of America earlier this year — have
pulled out of the market and won’t issue any new reverse mortgages. But MetLife
and several smaller companies plan to stay in the market, so you won’t have
issues finding a reverse mortgage if you want one.
But should you go forward with a reverse
mortgage? Only get one if you:
- Have equity in your home and no way of paying the bills other than selling your home and living on the proceeds (because reverse mortgages have steep upfront fees).
- Can pay the property taxes and home owners insurance bills from now until you die with or without the money you’re getting from the reverse mortgage. More on that later.
With a reverse mortgage, if you’re
62 or older, you get to cash out your equity (the bank keeps some as an
insurance policy on the “loan”) and keep the house. The bank pays you the value
of your house either in a lump sum, in fixed monthly payments, or gives you a
line of equity, all of which are based on formulas taking into account your
home’s appraised value, current interest rates, and the youngest applicant’s
age.
Because you don’t pay back a reverse mortgage, you don’t have to prove you have a future income the way you do with a regular mortgage — the reverse mortgage is your future income.
If you opt for the lump sum and spend it all, the bank can’t force you to move out. You get to stay until you die, or until you’re out of the house for a year, presumably in a rest home.
The catch: If you don’t pay your property taxes, the bank would have to pay them for you or foreclose before the tax man can sell your home to cover the taxes you owe.
Because you don’t pay back a reverse mortgage, you don’t have to prove you have a future income the way you do with a regular mortgage — the reverse mortgage is your future income.
If you opt for the lump sum and spend it all, the bank can’t force you to move out. You get to stay until you die, or until you’re out of the house for a year, presumably in a rest home.
The catch: If you don’t pay your property taxes, the bank would have to pay them for you or foreclose before the tax man can sell your home to cover the taxes you owe.
If you don’t pay your insurance
premiums, the bank can put an insurance policy on your house and then ask you
to pay for it. But if you can’t pay the bill, the bank has to get permission
from the U.S. Department of Housing and Urban Development, which backs reverse
mortgages, to foreclose on you. And, so far, HUD hasn’t allowed any reverse
mortgage foreclosures.
By the way, Wells Fargo has implied
it’s leaving the market because HUD isn’t moving fast enough to come up with a
financial assessment that would allow banks to turn down reverse mortgage
borrowers who aren’t qualified and also solve the tax and insurance issues.
Are
you a fit for a reverse mortgage?
Before you sign up for a reverse
mortgage, do some budget projections to make sure you’ll be able to continue to
pay your property taxes and insurance bills in the future.
If you know how much your home owners insurance and property taxes have risen in your town each year over the past 10 years, you can calculate how much they’ll be in 30 years. If, like me, you just know they always go up, but you’re not sure how much, you can use a general inflation calculator to estimate your costs out to 2070.
A reverse mortgage can be a blessing if your retirement income just isn’t going as far as your retirement costs. Getting to cash out your equity and not having to move truly is having your birthday cake and eating it, too, as long as you have enough cash to make sure you don’t outlive the party.
Would you take out a reverse mortgage to pay for home costs during your retirement?
If you know how much your home owners insurance and property taxes have risen in your town each year over the past 10 years, you can calculate how much they’ll be in 30 years. If, like me, you just know they always go up, but you’re not sure how much, you can use a general inflation calculator to estimate your costs out to 2070.
A reverse mortgage can be a blessing if your retirement income just isn’t going as far as your retirement costs. Getting to cash out your equity and not having to move truly is having your birthday cake and eating it, too, as long as you have enough cash to make sure you don’t outlive the party.
Would you take out a reverse mortgage to pay for home costs during your retirement?
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