The "catch" to a reverse mortgage

First, there is no “catch” or gotcha when it comes to reverse mortgages. In years past they were an unregulated mess, but that has mostly changed and for many people they turn out to be a very good option to improve what might be an otherwise challenging retirement. People are living longer, and it isn’t getting any less expensive as they age.

If you’re considering a reverse mortgage, there are a couple of things to consider:

1 - Everyone listed on the deed must be 62 years or older. If you and your spouse are listed on the deed, you must both be over 62 or the younger must be removed from the deed;

2 - A reverse mortgage must be the only lien on a property. This means, in order to obtain a reverse mortgage you must pay off any existing traditional mortgage. You can use your reverse mortgage proceeds to pay off your traditional mortgage;

3 - A reverse mortgage holder is responsible for staying current on their real estate taxes and homeowner’s insurance. If you go into arrears, you take the risk of being forced into default. A reverse mortgage holder is responsible for all maintenance on the home and it must be their primary residence; and,

4 - You are only permitted to live out of your home for a total of twelve months. This means, if you find yourself in, say, an extended care situation, or on an extended out-of-town work situation, you must approach your lender and discuss.

On the positive side of things, reverse mortgage fees are similar to those for any other mortgage product. The one additional fee is the Mortgage Insurance Premium, which is paid to the government mortgage insurance fund to protect you in the event the loan balance grows larger than the value of your home.

Morever, A reverse mortgage is a loan in which a lender pays you while you continue to live in your home. The payments can be made monthly, or in a lump sum, or in the form of a line of credit. You don't have to pay it back while you still live in your home.

To be eligible for a reverse mortgage, you must own your home. The amount you may borrow is generally based on your age (62 is typical), how much home equity you have, and the loan rate.

As a reverse mortgage borrower, you do not give up title to your home, and the money from an RM can be used for any purpose. However, you must pay closing costs and mortgage lender fees for a reverse mortgage.

The loan must be repaid when you sell your home or stop living in it as your principal residence. You or your heirs are not responsible for any remaining balance above the price of your home if you sell it for less than the loan amount. If you have equity in the home after the loan is repaid, that belongs to you or your heirs. A reverse mortgage, because of these costs, rarely makes sense for short-term use.

Taking on a reverse mortgage can be a smart move or a financial disaster, depending on the type of loan and your circumstances. Avoid certain reverse mortgage mistakesand consult a HUD-approved mortgage counselor to make an informed decision.