Terminology, Tips and More
The vast majority of older Americans want to remain in their homes as they grow older, also known as aging in place. There are a number of costs to consider when aging in place including home modifications, transportation and in-home medical care. One way to pay for these costs and stay in your home is a reverse mortgage. If you’re considering a reverse mortgage, the American Bankers Association encourages you to understand what it is and weigh the pros and cons.
Shop around. Be sure to check with multiple lenders. You can use sites like www.reversemortage.org, sponsored by the National Reverse Mortgage Lenders Association, to find lenders in your area.
Understand your options. Be sure to evaluate all the options you have including applying for a home equity line of credit or home equity loan. Also consider selling your home.
Be cautious. If someone is selling you something and suggests you use a reverse mortgage to pay for it, consult a trusted advisor before signing anything.
Nothing is free. If anyone suggests that a reverse mortgage is free money, don’t believe it. Fees are built into the loan, which must be paid back with interest when it becomes due.
Know your rights. After closing the loan on a reverse mortgage you have three business days to reconsider your decision. If you choose to rescind the loan, you must do so in writing.
Consider borrowing jointly. If the reverse mortgage is in one person’s name and that person dies or leaves the home, the loan will become due. If there are two people living in the home – make sure you’re both on the loan or able to repay the loan – otherwise, you may end up losing the property.
Consider your age. Be cautious if a lender is suggesting you do this at an early age. Your debt will begin to grow and equity will decrease as soon as you take out the reverse mortgage. The longer you have the loan, the more it will cost.
Only take what you need. Carefully consider your payout options. Keep in mind that if you take the full amount of the loan in one lump sum, you will be charged full interest on the largest possible loan amount.
National Reverse Mortgage Lenders Association: www.reversemortage.org
AARP: http://www.aarp.org/money/credit-loans-debt/reverse_mortgages/
Consumer Financial Protection Bureau: http://www.consumerfinance.gov/askcfpb/224/what-is-a-reverse-mortgage.html
Federal Trade Commission: http://www.consumer.ftc.gov/articles/0192-reverse-mortgages
U.S. Department of Housing and Urban Development: http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhome
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