What to Know Before Getting a Reverse Mortgage
After living in a home for years and years, many people consider using the equity in the home as a resource for financing other expenses, such as tuition or to pay down debt. A reverse mortgage is one option for those who have owned their home for a long time. Senior citizens primarily utilize them. The process is not more difficult than a traditional home mortgage, but there are many differences that the applicant must know about before moving forward.
This is a special loan that provides homeowners with the opportunity to use part of their home equity as a liquid asset. This essentially turns part of the home's value into tangible cash that can be used for other expenses. The accrued equity can be paid out to the homeowner to use as they see fit. While this sounds much like a home equity loan, there are some substantial differences. This type of arrangement does not require repayment until or unless the homeowner is no longer using the house as his or her primary residence.
Significant Differences in Home Equity Loans
There are some additional differences between a reverse mortgage and a home equity loan. Standard equity loans require a regular monthly repayment on the principal and interest on the loan. The reverse mortgage pays the homeowner rather than making payments to the bank. Utility payments, insurance, and any taxes will have to be paid, however.
Home Loans That Are Eligible
Not all housing situations are eligible for this type of specialized loan. The home must be a single-family house with the owner living in it. Any house that meets FHA standards is also approved for these loans, including condos and manufactured dwellings.
Questions About Inheritance
A common question that comes up when someone inquires about a reverse mortgage is how the house will be dealt with after they pass away. Many homeowners want to leave a home behind as an asset for family members to utilize. These specialized loans do not cause debt to be passed to the estate. Instead, any money paid to the owner, along with finance charges and interest, will have to be repaid to the bank. If it is sold and the profit is greater than the selling price, the extra money will be provided to the estate to be distributed among heirs.
Cancelling the Loan
While some find this arrangement appealing, others may decide to change their mind and cancel the loan. The owner has three calendar days to cancel the process. Different lenders will have varied approaches with how they handle this process, which is referred to as a three-day right of rescission.
Before jumping into a reverse mortgage, be sure to fully review the information provided by the lender in order to fully understand the process. If there are any questions, it is best to ask them well in advance of moving forward with the lending process.