Considering a Reverse Mortgage? Start with a Self Evaluation.
A Home Equity Conversion Mortgage (HECM), commonly referred to as a traditional reverse mortgage, can be a valuable tool for seniors in retirement. A HECM enables homeowners 62 years of age or older to tap into their homes’ equity in the form of a one-time lump sum disbursement, monthly cash disbursements, a line-of credit, or a combination of these if appropriate.
If you’re considering pursuing a reverse mortgage, completing a self-evaluation is a smart first step. The National Reverse Mortgage Lenders Association, which focuses on consumer education and lender training and ethics standards, offers a seven-point questionnaire that can help you assess whether a reverse mortgage is right for you. Here are a few topics you can expect to cover:
It is important to consider how you will use your HECM funds — whether you’ll make aging-friendly renovations, supplement retirement income, or create an emergency fund. Then, you’ll need to make a plan for maximizing the benefit of your loan dollars and making them last.
While monthly repayment is not required as long as loan terms are met, HECM borrowers still have to meet certain obligations, including maintaining the property as your primary residence, keeping up with maintenance and repairs, and paying taxes, insurance, and other associated costs. Determine if you have the budget, support and ability to meet these requirements.
Reverse mortgages have specific borrower qualifications. If you are married, your spouse may or may not qualify as a co-borrower. Depending on the scenario, you will want to understand their responsibilities as a surviving spouse.
Effects on other benefits
A HECM can affect your eligibility for means-based programs like Medicaid and Supplemental Security Income. A financial advisor can help you assess how this could affect your overall financial health.
Loan repayment is deferred until all eligible borrowers have passed away or stopped living in the home permanently, or if the homeowners sell the home or fail to meet the terms of the loan. This means your surviving heirs may be responsible for repaying the loan through your estate. You may want to include them in your loan counseling session so they are aware of their potential obligations under the agreement.
All of these topics, including more detailed questions, are covered in the NRMLA Reverse Mortgage Self-Evaluation. An NRMLA-certified lender like C2 Financial can provide additional information as you decide whether to pursue a reverse mortgage. Contact me for more information.
Things to know about Reverse Mortgages:
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
- The loan balance grows over time and interest is charged on the outstanding balance
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment