As far as financial decisions go, taking out a reverse mortgage is a major undertaking. If you want to explore options in how to increase your financial security during your retirement years or boost your income, here are a few things about reverse mortgages to help you out:
1. The cash advances you get aren’t taxable.
So you don’t have to worry that you’re getting too little funds in exchange for your home equity.
2. Pay attention to the fees.
When you look around for Home Equity Conversion Mortgage or HECM lenders, be sure to check and compare the charges and fees. Lenders usually have an origination fee as well as a number of closing costs. You might need to add servicing fees as well for the rest of the mortgage’s life. For federally-insured HECMs, you might even end up paying for mortgage insurance premiums.
3. Your debt rises.
With every payment you get, interest is stacked onto the amount you owe. That means added interest over time increases your debt, even more, warns the Federal Trade Commission.
4. You need to pay for your home costs.
You retain the title to the property. You are, after all, still the homeowner. And that means you need to keep up with your homeowner’s insurance, the property taxes or maintenance and home service repairs. If you don’t keep up with the payments, you could lose your home.
5. What does this mean for your heirs?
Reverse mortgages mean there are fewer assets to bestow upon your heirs. But with an HECM, if your heirs decide to keep the home rather than sell it, they only need to pay for the loan based on the appraised value of the property.
This is a major financial move, so be sure to have all the facts before you make a final decision. Consulting an expert on reverse mortgages can help.