Commercials promoting reverse mortgages as the key to a happy retirement â€“ or as a way to finance home repairs â€“ are very common.
But that does not mean a reverse mortgage is right for each senior citizen. As with any transaction, Better Business Bureau advises consumers to do their research before signing up for a reverse mortgage. Fees can be significant, and the mortgage could deplete assets that will be needed when you are no longer able to live in your home.
Reverse mortgages are available to homeowners who are at least 62 years old, have equity in a home that is in good condition and who expect to use the home as their primary residence. A reverse mortage is essentially a loan for senior homeowners and uses equity in the home as collateral. Typically the loan is repaid after the last homeowner permanently moves or passes away.
Borrowers still own their homes, which means they need to keep paying property taxes, insuring the house and making needed repairs. If you do not meet those requirements, your loan could become payable in full immediately.
Before you obtain a reverse mortgage, you must meet with a home equity conversion mortgage (HECM) counselor. The Fair Housing Administration (FHA) has information on such loans free of charge, and many counselors provide their services free or at low cost. A list of approved counseling agencies is available by calling 1-800-569-4287 or at www.hudexchange.info/programs/housing-counseling/.
Be sure to check out your mortgage lenderâ€™s BBB Business Profile at midmobbb.org.
Consider whether it is practical to stay in your home at least five to 10 years to make the reverse mortgage economical. Look at any health care or accessibility needs that may make living in your home impractical or unsafe. If you have to move into an assisted living facility or a nursing home, you could be forced to repay the reverse mortgage.
If you have children or other heirs, you should involve them in your decision to head off any misunderstandings or family discord.
Understand all fees involved in a reverse mortgage. These may include a loan origination fee, closing costs, a mortgage insurance premium, a servicing fee and interest that will accumulate over the life of your loan.
You do not make monthly payments with a reverse mortgage, so the amount you owe grows larger over time. That can reduce your equity in the home â€“ and the amount of cash you might have left if you sell the house and pay off the loan.
Before you close on a reverse mortgage, ask for advance copies of all the loan documents and read and understand them. If you do not understand it, do not sign.
For more BBB tips, BBB customer reviews and business profiles, call 888-996-3887 or go to midmobbb.org.
Sean Spence is regional director of the Mid-Missouri Better Business Bureau.
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