OKLAHOMA CITY (KFOR) – Reverse mortgages allow older homeowners to turn part of their home into tax-free cash, but is it the right move for you or an expensive mistake?
What is a reverse mortgage?
A reverse mortgage is a unique type of loan that allows older homeowners to borrow money against the equity in their house that doesn’t have to be repaid until the homeowner dies, sells the house or moves out for at least 12 months. At that point, your heir will pay back the loan plus accrued interest and fees. However, you never owe more than the value of the home.
Under a reverse mortgage, you still own the house so you must still pay property taxes and homeowner’s insurance.
To be eligible, you must be 62-years-old or older, own your own home, and currently be living in it. You also must undergo a financial assessment to determine whether you can afford to continue paying your property taxes and insurance.
Depending on your financial situation, you may be required to put part of your loan into an escrow account to pay future bills. If the financial assessment finds that you cannot pay your insurance and taxes and have enough cash left over to live on, you will be denied.
How much you can get through a reverse mortgage depends on your age, your home’s value, and the prevailing interest rates. To estimate how much you can borrow, you can use the reverse mortgage calculator.
However, reverse mortgages aren’t cheap.
Home Equity Conversion Mortgages loans require a 2 percent upfront mortgage insurance payment, plus an additional 0.5 percent annual charge, on top of origination costs and lenders’ fees. Any amount you borrow, including those fees, accrues interest.
To learn more, read the National Council on Aging’s online booklet “Use Your Home to Stay at Home.”
Also, all borrowers are required to get counseling through a HUD approved counseling agency before taking out the loan. Most agencies charge between $125 and $250. To locate one, you can call 800-569-4287.
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