Considering a Reverse Mortgage? Read This Before You Apply

by Penny Palmer 06/26/2020

Photo by Alexander Mils from Pexels

If your wealth is tied up in your home, how can you free up some cash? A reverse mortgage is available to homeowners with mostly or fully paid-off mortgages. The monthly payments, which come from the lender to you, are not counted as taxable income. But there are mortgage taxes, and interest rates on reverse mortgages are somewhat higher than the current rate for a normal mortgage.

The FHA's Ever-Popular Reverse Mortgage Offering

Are you 62+? Consider the home equity conversion mortgage, available through the FHA. An approved counselor will lay out the process and point you to a qualifying lender. 

Then, here's what you should expect:

  • There are initial and annual fees, as well as recording fees.
  • Expect credit checks.
  • And yes, you do need an appraisal, inspection and a title search. 
  • In contrast to the usual custom with a regular mortgage, as the AARP points out, you'll probably have to pay the home insurance and local property taxes yourself.

The more you borrow, and the longer the term of your loan, the heftier cumulative interest charges you'll pay.

The Other Ways to Get to Your Home Equity 

Of course, you might sell and downsize. Not ready for that move? Think about...

Cash-Out Refinancing

If your credit score is 640 or above and you have a mortgage, consider cash-out refinancing with the FHA. This replaces your present mortgage with a larger one. The larger loan pays off your mortgage, replaces it and gives you the extra funds in a lump sum. You can be younger than 62. 

The Private Reverse Mortgage

Put up your home as collateral and enter a loan agreement with a close friend or relative. It's not altogether "private" — private reverse mortgages have a standard interest rate, governed by the IRS — but the rate is lower than a bank's.  

The HELOC 

A home equity line of credit (HELOC) empowers you to tap into your home equity. It's something like a credit card: there's a set credit limit. You only need to pay interest on what you withdraw. Note that HELOCs do not come with fixed interest rates.   

The Home Equity Loan

An alternative to the reverse mortgage that can work when you need cash upfront is the home equity loan. You'll pay interest on the lump-sum amount.

Best of Luck (and Patience)!

If there's one thing you must have before applying for a reverse mortgage, it's patience. A reverse mortgage, like a conventional mortgage, involves a full approval process, including those pesky calls and queries about proof of your capacity to repay the loan.

But the result can make it all worthwhile. 

About the Author
Author

Penny Palmer

Penny is professional licensed REALTOR. She helps her clients buy, sell and invest their homes with the least amount of stress, while working within the demands of each individual client. Her knowledge of the real estate industry and her access to an extensive amount of resources allows her to get her clients the best deal. The Real Estate industry is forever changing and Penny believes in order to provide the best service to her clients it is crucial to keep up with these changes. She does so by continuously educating herself. She holds special designations as a PSA (Certified Pricing Strategy Advisor), CBR (Certified Buyers Client), and ReTP (Real Estate Tech Pro), which provides great benefits to her clients. She bases her business on being honest, loyal and dependable. She is willing to go the extra mile to make her clients happy.

Penny is a true believer in giving back to the community. She personally does this by donating, volunteering, and participating in numerous fundraiser for various causes. She holds a special place in her heart for causes pertaining to animals and servicemen/women. 

In her free time she loves spending time with her family and friends. Staying physical fit is important to her. She loves all water sports, cross fit, rock climbing, races especial OCRs, yoga, and anything new that catches curiosity. 

SO LET PENNY MAKE YOU SMILE, BY GOING THAT EXTRA MILE!!!!