Need to Reverse the Equity Out of Your Home?
Credit Advisors Foundation completed a survey on perceptions about reverse mortgages. Some of our findings include:
- While only 16% of our respondents were old enough to qualify for a reverse mortgage, 14% of respondent indicated they were considering reverse mortgage as a means of supplementing income in retirement.
- 85% of respondents knew there are no restrictions on the intended use of the proceeds of a reverse mortgage.
- Only 50% of respondents knew that educational counseling from an agency approved by HUD employing counselors that are reverse mortgage certified regarding the advantages and dangers of reverse mortgages is required prior to being approved by any reverse mortgage broker for the loan.
- 100% of respondents knew that the property involved must be your primary residence.
- Retirement is not a requirement for qualification for a reverse mortgage. 66% of respondents knew that the borrower could still be gainfully employed.
- 85% of respondents knew there was no limit on the amount of time the homeowner could continue to live in the house after the reverse mortgage goes into effect.
Reverse mortgages are for those who are ‘house rich and cash poor’. They can be complex and costly, and there is much you need to know before making a decision to proceed. The borrower must be 62 years of age or better. Loan amounts are determined by the borrower’s age and the value of the home. Unlike a standard mortgage, the borrower does not make payments to the lender. Repayment of the reverse mortgage occurs when the borrower sells the home, permanently leaves the residence, or dies.
When considering this option, you must be aware that the interest rates and fees of a reverse mortgage are generally higher than a standard mortgage. Be sure to review all associated costs including appraisals, mortgage insurance, origination fees, closing costs, and any monthly servicing fees or charges. On average, six percent of the equity of the home will be committed to loan costs.
The U.S. Department of Housing and Urban Development (HUD) offers a guaranteed reverse mortgage, that they call a Home Equity Conversion Mortgage (HECM). Although, like all mortgages, reverse mortgages pose some risk, the loan offering through HUD will most likely be your safest option, if you decide the reverse mortgage is for you.
Credit Advisors Foundation is a certified Housing Counseling Agency with trained housing counselors available to answer your questions, review your concerns and assist you as you consider this important decision. Our certified housing counselors are also able to complete any necessary counseling documentation if you decide to move forward through the process.