pan93bass posted an update 1 week, 1 day ago
As this segment of America begins to retire a large portion of them will need to rely on their homes equity to make “ends meet.” How they access that equity will be the mortgage industries primary focus in the years to come.The traditional “forward” mortgage has the What to Know Before Getting a Reverse Mortgage homeowner borrow the money by way of a traditional mortgage or home equity line and make payments on that amount. If the home is “upside down” your heirs have no obligation to repay the debt, but they will forfeit the home unless they pay the amount owed.However FHA rules state: “When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender.” The danger here is “no longer use it for your primary residence. This means if you have to go to a hospice, nursing home or intend to live in another home and use the house as a second home the bank will call the debt due. This is definitely something you want to consider before taking out a reverse mortgage.2) Cost and Interest Rates – At the inception of reverse mortgages they were almost exclusively offered with adjustable interest rates. Adjustable rates are still standard practice and you are almost certain to be offered this option to begin with. Don’t! There are fixed rate programs available now and at today’s rates adjustable rates are only going to go up in the future. It’s easy to be lured into an adjustable rate because lower interest rates in a reverse mortgage have higher monthly payments. If the interest rate increases your payment decreases, as does the time frame you have to draw on the mortgage. Just remember, adjustable interest rates are a gamble and Las Vegas wasn’t built on winners.A considerable downside to reverse mortgages is the high up front costs. This cost can be compensated by a lower interest rate over time, but some seniors choose other options to draw on their home equity. Reverse mortgage closing costs should be about the same as most loans except the 2% mortgage insurance premium that FHA charges to insure the loan. FHA insures the lender will be paid regardless of the home’s value when and if the lender has to take over the property.At Lendfast.com we have noticed that many homeowners are paying higher closing costs for reverse mortgages than traditional forward mortgages. We believe this is because most homeowners are unfamiliar with reverse mortgages and tend to not shop around as with traditional mortgages. This is why we recommend the FHA insured type of reverse mortgages because they have closing cost limits that lenders must abide by. Always get two quotes or use the “lenders compete” method to apply for a reverse mortgage. You should also read How Does a Reverse Mortgage Work an article that explains reverse mortgages better.3) Upkeep, Taxes and Insurance – On traditional mortgages your escrow payments are added to your payment but they are subtracted from your monthly check on a reverse mortgage. Most of the time you will be shown the monthly amount you will receive each month BEFORE the escrows are taken out.