Seniors looking for a way to boost income often consider reverse mortgages. Before you make the leap into this attractive way to tap your homes equity, you should understand fully some of the pluses and minus’ for this newer loan option. Reverse mortgages tap a homeowner’s equity in their primary residence either through monthly payments, one-time payouts or as a line of credit. But, beware of lenders who rush you into the loan, without providing thorough counseling.
-The amount a homeowner can borrow is based on their age, the current market value of their home, interest rates and applicable fees when they apply for a reverse mortgage.
-The up-front fees for a reverse mortgage are often much higher than other mortgage loans. These fees are called in industry jargon; front loads. Higher interest rates, origination fees and points are a significant profit center for mortgage brokers.
– To qualify for a reverse mortgage, a homeowner must be at least sixty-two years old. However, lenders prefer older borrowers, as their remaining life expectancy is lower. Banks are repaid when the owner dies, so the older the borrower at loan origination, and the earlier they will be repaid.
– Each states’ Medicaid eligibility requirements vary, but as long as your home equity remains untapped and you are occupying your home as a primary residence, the equity is not considered an asset to Medicaid. Once you tap the equity through a reverse mortgage, the income or one-time payment can be considered an asset, reducing or eliminating Medicaid coverage. Contact an eligibility specialist at Medicaid before you take out a reverse mortgage.
-Nursing home visits can also play havoc with reverse mortgage conditions. Lenders can remove owners from their homes after a specified period of time, even a short-term nursing home stay.
-While there are financial benefits to a reverse mortgage, reputable banks and concise loan agreements laying out the ramifications of a borrowers ill health are imperative to a successful reverse mortgage.
-Some senior homeowners decide selling their home and downsizing or renting is a better financial and lifestyle alternative for them than a reverse mortgage.