A reverse mortgage is a viable proposition for homeowners age 62 and over. It allows them to access their available home equity while still holding the title to their home. The extra income can be used as the borrower sees fit, from remodels to medical bills or just to meet monthly obligations. But before you take out such a loan, make sure that you arm yourself with these six helpful reverse mortgage tips.
- There are closing costs. Just like other type of a home loan, there are associated closing costs with a reverse mortgage. The Consumer Financial Protection Bureau advises that there are origination fees, mortgage insurance premiums and other associated closing costs that you should be aware of. Be sure to discuss these with your lender so there aren't any surprises.
- The loan balance will increase over time. Since reverse mortgage loans do not require that you make any payments, the principal balance won't decrease over time. But the interest will be added to the outstanding balance each month, which means that your balance will increase as time passes.
- The interest rates can vary. According to Bank Rate, a reverse mortgage may have varying interest rates. They can be issued with a fixed or a variable interest rate. These are lending options which may vary between lenders, too.
- You only are required to repay the value of the home. Many reverse mortgages come with what's called a non-recourse clause. According to Investopedia, this means that you are only liable for the value of the home, not the balance due. This helps protect your estate from owing monies after the home is sold, if the value has decreased.
- You can't deduct reverse mortgage interest fees. Unlike some forms of conventional home loans, the IRS says that you are not allowed to deduct interest fees from a reverse mortgage from your income taxes because it is a loan, not an income source.
- Use a specialized lender. The best of all reverse mortgage tips that can be offered is to use a lender that specializes in issuing reverse mortgage loans. Set aside time to research each lender that you are considering and talk to your financial adviser to see if they can offer a referral.
In short: educate yourself about a reverse mortgage before you borrow, and you can assure a smoother process all around that results in an educated decision.