Understanding Reverse Mortgages

Reverse mortgages are an equitable option for many homeowners who are 62 years old or older. This type of mortgage gives the homeowner the equity in their home while allowing them to hold the deed to their home. This extra income can be used for any reason, including medical bills, vacations or to help with their monthly obligations. The following six tips will prevent you from making the most common mistakes.

Closing Costs
Just like any other type of mortgage, there are closing costs. These closing costs can either be deducted from the money you receive or paid out of pocket. The Consumer financial Protection Bureau states most reverse home mortgages have mortgage insurance premiums, origination fees and other closing costs. Speak with your lender before you closing date to ensure there are no surprises att he closing table.

Increasing Principal
As time passes, the balance on your loan will increase. Reverse mortgages do not require payments; therefore, the balance will not decrease with time. The interest will be added to the principal each month, meaning the balance will continue to grow as time passes by.

Interest
The interest rate on a reverse mortgage can vary from lender to lender. The interest rate can either be a variable interest rate or a fixed interest rate. Speak with a lender to determine the best interest rate for you and your unique situation.

Non-Recourse Clause
Did you know that you are only required to repay the home’s value if it has a non-recourse clause? This clause states that you will only be liable for the current value of the home and not the entire balance due. This clause protects your estate and loved one. Once your home is sold, your family will not be responsible for any monies above the value of the home.

Tax Deductions
Unlike traditional conventional loans, you will not be able to deduct the interest fees on a reverse mortgage. The IRS says because a reverse mortgage is an income source and not a loan, the interest cannot be deducted on your taxes.

Specialized Lenders The most important tip is to use a lender who specializes in reverse mortgage loans. Take you time and research each lender you are considering. Then, speak to your financial advisor and ask them who they would recommend.

A reverse mortgage is a viable option for older Americans who want to cash in the equity in their homes without being responsible for a monthly payment. These mortgages are great; however, you should always be careful and know exactly what you are doing before you sign any paperwork. Conduct research before signing anything to help prevent setbacks and mistakes.