If you’re like most of us, you have likely seen the commercials regarding reverse mortgage. Dean Graziosi explains that these are loans targeted at seniors who own their home but may not have any other assets at their disposal. A reverse mortgage is a type of loan that allows homeowners to change their existing home equity into cash. Rather than paying a mortgage every month, the mortgage will pay the homeowner. This type of loan differs from a home-equity loan in that you are not required to pay back the loan until you leave the home or pass away. There is also no income requirement necessary to be approved for this type of loan, which makes it appealing to many homeowners.
For homeowners who are 62 years of age or older and own your home or have paid down a significant amount of your existing mortgage, you may be eligible to take part in the FHA’s Home Equity Conversion Mortgage program. This program is also known as HECM and is designed to allow homeowners to withdraw funds from their home through a fixed amount which they will receive monthly, through a line of credit or a combination of both methods. Many of the reverse mortgages that we hear about are HECM loans.
Homeowners who are interested in participating in this program should be aware of the drawbacks associated with these types of loans, states Mr. Graziosi. One of the most important of these drawbacks is that the homeowner may not be able to easily get out of the loan without having to sell their home to settle the debt. This can be a rather large problem for those who had intentions of leaving their home to their children without any debt associated with the property. While there is no debt passed on to your heirs, and any equity that you have remaining in the home is transferred to them; the balance of the reverse mortgage plus interest will need to be paid off by them or the home will be sold to satisfy the debt. When this happens, all of the proceeds from the sale that are beyond the amount of the loan will belong to the estate.
If you are among the many who are interested in obtaining a reverse mortgage on their home, you should first consider financial counseling to determine whether the process is the right decision for you. These counselors will provide you with all of the relevant and crucial information regarding reverse mortgages and the alternatives that are available for you. Counseling is required for those who are obtaining an HECM reverse mortgage. Before you enter into a reverse mortgage you should carefully weigh all of your options and clearly understand what is expected of you and your heirs when you enter into this type of loan.