A regular mortgage may sound like something difficult to understand. Throw in the reverse mortgage, and you may find yourself with a lot more questions than answers. But if you, like Jason Hartman, have a flare for real estate, it might be worth understanding. Basically, you give the bank a mortgage on your home that is based on current equity. The mortgage company then pays you a specific amount each month for a certain amount of time—until you die, move, or turn 100 (they’re only available for homeowners 62 and over). Reverse mortgages aren’t good investments unless you intend to live a long time and stay in your home.
In the case of reverse mortgages, banks own your home for the duration you’re paying them back. You’ve still got the title to the property, but your equity could decrease. The advantage of a reverse mortgage is that the homeowner has access to some of their home’s equity in the form of monthly payments, but know that they are secure in their home so long as they maintain the home and pay taxes. When the borrower dies or moves out, the mortgage must be repaid. Simply put, a reverse mortgage allows a home owner to convert a portion of home equity into cash without the inconvenience of having to sell your home. Eligible homeowners may also use a reverse mortgage as a line of credit in case of emergency.
Reverse mortgages require completion of a HUD approved counseling session to ensure the thorough education of those wishing to participate—at a cost of around $125. After that, fees can range, but you should expect to pay around $10,000. Monthly payments will vary too, and your age has a lot to do with that.
Qualifying for a reverse mortgage doesn’t necessarily mean you should get one—there’s a lot to think about, including additional fees. Homeowners must stay current on homeowner’s insurance, property taxes, and homeowner’s association dues—failure to do so will result in foreclosure. The amount you owe will grow over time, you’ll pay interest, and you’ll increase your total debt. You’ll have fewer assets left in the long run, less to pass on.
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