Should You Take A Reverse Mortgage?
While there are a few different kinds of reverse mortgage products, they typically all share certain features. Before shopping for the one that best meets your needs, it is a good idea to have a basic understanding of what these various loans have in common. Heres an overview of the five traits that they all generally share.
SEE ALSO: 5 Common Features Of Reverse Mortgages
1. Ownership Rights
To qualify for a reverse mortgage, you need to live in the home as your primary residence
. That means you cant use investment property or vacation homes. You retain ownership rights when you take out a reverse mortgage, too, so you will continue to have the same basic responsibilities that other homeowners have. You have to pay property taxes and homeowners insurance, for example, and take care of routine upkeep and repairs.
2. Age Requirements
Reverse mortgages are only available to homeowners who are at least 62 years of age
. So what happens when two people of different ages, such as a husband and wife, share ownership of the house? In that case, the younger of the two persons must be 62 or older.
3. Repaying A Reverse Mortgage
Your heirs are not responsible for the reverse mortgage, so the lender cannot force them to pay. At the time of your death, for example, if your home has lost value and is worth less than what the lender paid out to you, it is the lenders tough luck. They are not entitled to any amount above the value of your home. But there is a notable exception: If you prematurely move out, sell, or fail to maintain the home, then the lender may demand repayment of your reverse mortgage right away and in full.
4. Costs, Fees, And Income
Payments will be made to you either in a lump sum, or in regular installments. But, as with other loans, you will have to pay closing costs. While lenders may let you roll those fees into your loan, reducing your payout, you should still carefully calculate all those expenses. The goal is to structure your use of a reverse mortgage in such a way that you receive adequate financial proceeds from it to last for the rest of your life.
SEE ALSO: Everything You Need To Know About Reverse Mortgages
5. Other Special Conditions
Defaulting on the terms of a reverse mortgage has serious consequences. Violating your agreement by not paying property taxes, for example, can trigger default and immediate repayment of any outstanding balances.
If the property is condemned, or if you go bankrupt, that can also count as a default.
Thats why its critical that homeowners make sure that they have enough money to cover their real estate-related overhead. Dont make the mistake of receiving a reverse mortgage lump sum and then spending it, leaving you with too little cash to meet your basic obligations, and no more equity to tap into.