Some Things You Didn’t Know
I think you’ll agree with me when I say…
There’s a lot you of information you can pick up from reverse mortgage plans.
Nevertheless, with the limited research options and expenses that come with consulting professional advice, getting the right information on equity release might be challenging.
Lucky for you, here’s a comprehensive guide to the facts about reverse mortgages.
Hopefully, you will find the answers to the things that have been bugging you about this life-changing product. If not, please be sure to click here and see how much equity you can release and chat with an expert for free.
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Get to Learn the Truths About Reverse Mortgages
The reverse mortgage industry has been breaking records since its conception. From £1 million in 2011 to £4 million in 2018, and more equity firms project that the reverse mortgage industry will hit a record of £6 million by 2020.
Need more info about a reverse mortgages? Have a look at ‘What is Reverse Mortgage?’
With this product offering the best services to homeowners, you are probably considering applying for it too and get to enjoy your retirement,but you are still not sure about what it entails.
Well, here are some of the facts about reverse mortgages that might keep your mind at ease:
#01. Reverse Mortgages Have Various Pay-out Options
Unlike other mortgage schemes, reverse mortgages provide you with several payout options for you to tap your home equity. The Federal Housing Administration (FHA), as mandated by the federal law, offers five payment plans:
- One plan encompasses taking equal monthly disbursements that run as long as one borrower remains alive and lives in the estate as his/her principal residence
- The other is a fixed term of years, after which time you’ll stop receiving monthly payments even if you’re still living in the estate,
- There’s also the flexible line of credit which gives you the option of selecting how much and when to take your cash out, up to the maximum amount of the line
- In addition to those three plans, you can opt to combine lines of credit with the first two monthly-payment options. These two hybrid choices enable you to use a portion of the available funding for a range of credit and getting the rest through either of the two monthly-payment options.
#02. You May Lose Your Estate
Since its inception, most reverse-mortgage plan providers have falsely advised their clientele that they can’t lose their properties with a reverse mortgage.
While reverse mortgages do offer some safety to homeowners, they still need you to keep up with your end of the bargain, and usually, there are ominous consequences if you don’t.
Some of the accountability involved with taking out a reverse-mortgage include paying maintenance fees, the homeowners insurance, and property taxes. Many lenders will monitor you closely to ensure that you heed to your contract and keep up with those responsibilities. If you don’t, they then take action on the mortgage, with options that include foreclosure.
In recent years, the FHA has seen up to 60% of homeowners take out large lump sums in instead of using the monthly payment plan. Those homeowners then quickly use up the cash and within months find themselves unable to handle the costs of keeping up their residence.
#03. Who’s Listed on the Reverse Mortgage Plan Is An Important Aspect
Many families have found themselves in a pickle recently with reverse mortgage lenders because they listed only one owner as the primary borrower.
The benefit of listing one member, preferably the older member of a couple, is that it automatically boosts your monthly payment or allowable loan amount. However, the much more significant issue is that the assurance that you’ll be permitted to remain in your estate as long as it’s your principal residence extends only to the named borrowers, not to spouses or family members.
Therefore, as a result, in circumstances where the named mortgagor breathes their last or moves into permanent care, the lenders have a foreclosure on surviving spouses who weren’t listed on the reverse mortgage scheme.
#04. You Have to Beware of the Unscrupulous Lenders Out There
Puny estate values and cumulative complaints about reverse mortgage schemes have caused a rift in the industry with some of the reverse mortgage companies exiting the market.
One of the most affected reverse mortgage lenders is the Bank of America (BAC), among others. With these companies leaving a space in the market, smaller mortgage brokers and lenders have started taking their place.
However, while some of these smaller companies are reputable, others can push you into mortgages that make it challenging for you even to afford the regular maintenance and other costs you’re mandated to cater to under a reverse mortgage.
#05. Reverse Mortgages Only Offer You a Percentage of Home Equity
Reverse mortgage schemes don’t offer you access to the maximum equity you have in your residence. Instead, the FHA calculates the maximum mortgage amount depending on the age of the youngest homeowner, existing interest rates, and the appraised value of your estate.
You also have to cater to the costs that come with taking out a reverse mortgage, which includes mortgage insurance premiums, third-party lender charges, and origination and servicing fees. Most plan providers will work these costs into the loan amount they offer you, thus lowering your net proceeds even further.
#06. The Government Doesn’t Originate Reverse Mortgages
The government covers HECM, the FHA’s reverse mortgage program, which safeguards you and your plan provider, but it isn’t a lender. Reverse mortgages are mostly products offered to homeowners by private companies.
So let no one confuse you by advertising that product as a “government loan”.
#07. You Have to Reside in Your Current Estate
You can only access the loan if the estate is your primary residence. If you stop residing in your home for 12 months, the loan will become due and payable.
#08. The Bank Doesn’t Take Ownership of Your Home
Contrary to most homeowners’ beliefs, the bank doesn’t take ownership of your estate after getting a reverse mortgage; you maintain the ownership and title of the property.
Therefore, as long as you continue to honor the stipulated loan terms, like paying property taxes and home insurance while occupying the estate as your primary residence, you can retain ownership of your house.
It would be best if you also kept in mind that a reverse mortgage is still tenable with interest in the property, so in the rare event that you fail to comply with terms of the lease, your home may go into foreclosure.
#09. You Have to be Older Than 62 to Take Out a Reverse Mortgage
If you decide to take out the mortgage as a couple, the youngest borrower must be at least 62 years old.
#10. Inheritance is Usually at Risk
Inheritance and reverse mortgages are one of the most debated matters. Some argue that you can lose all your estate and leave zero to nothing for your family, while others say that you can choose to leave a portion of your estate to your heirs.
The thing is, unlike other mortgages, when the reverse mortgage reaches maturity in the future, your heirs may opt to sell the property to repay the mortgage. If that is the situation, then they will become heirs to all the remaining equity of your home after they repay the loan.
With the real estate market rapidly appreciating every day, homes typically continue to appreciate in value and thus often enabling you to retain equity for your beneficiaries. Your family members may also decide to keep your estate as inheritance and repay the loan another way, like refinancing it into a conventional mortgage. Either way, your family doesn’t lose all their inheritance.
Reverse mortgages can be a valued tool to aid you in making ends meet, but they can also be tremendously dangerous and put your estate at risk. Therefore, before following through with a reverse mortgage scheme, be sure that you fully understand the stipulated terms and shop around to get the best deal you can. Ideally, the best way to ensure you’re making a smart decision is to find a professional adviser who doesn’t have an interest in getting you to take out the reverse mortgage.
If you have further questions about reverse mortgage schemes and other products,be sure to click here and see how much equity you can release and chat with an expert for free!
How much money could you release?
A reverse mortgage plan allows you to access the value of your home, tax-free without having to sell up, so that you can have money to spend on whatever you want or need.