Reverse mortgages are widely advertised to seniors as a popular way to access the equity of their home, which may be attractive to consumers seeking a quick source for cash during tough financial times like the COVID-19 pandemic. Homeowners should fully understand all the costs, terms and conditions before applying for a reverse mortgage.
A reverse mortgage allows homeowners to convert part of the equity in a home to cash without having to sell the property. The cash may be paid to you in installments or a lump sum, so typically you don't need to pay anything back if you live in your house. Due to the attractiveness of these loans, senior citizens should be on guard against being charged excessive upfront fees for services that are generally available free of charge or at a very low cost through the U.S. Department of Housing and Urban Development.
Reverse mortgages also may come with some significant strings. Consumers should understand that because they're deferring repayment of the reverse mortgage until they move out of their home or die, the amount they owe will grow substantially over time.
Here are some tips to consider before applying for a reverse mortgage. Know the basic requirements. To apply for a reverse mortgage, a senior must be 62 years or older and have equity in the home. The home must be the primary residence and remain in good condition. Involve heirs in the decision. Since a reverse mortgage affects the assets of the borrower in case of death, involving heirs will avoid future misunderstandings. Determine whether it is practical to keep the home long enough to make the reverse mortgage economical. Be prepared to pay for some of the fees involved in the processing of a reverse mortgage loan, which can include an origination fee, closing costs, a mortgage insurance premium, a servicing fee, and the interest rate.
