Taking out any type of a real estate loan is a big decision. It's already warranted that you should take your time and carefully arrive at your own decision. Along the way, these six reverse mortgage tips can help you better make up your mind.
1. Lenders charge closing costs. Usually you will pay for a mortgage insurance premium, an origination fee and other associated fees. But these fees can and do vary between lenders. Your best course of action is to contact your lender directly to inquire about what fees you'll be required to pay.
2. The balance will increase. Since you will not be tendering any payments towards the loan during your lifetime, the balance will increase as the interest is accrued. Over time, this balance can grow. But it is paid off from the sale of your home after your passing.
3. You have interest rate options. These rates are set by the major banking institutions, but what a lot of people do not know is that a reverse mortgage can have a fixed or a variable interest rate. Make sure you know which one suits you best in the long run first.
4. You only have to repay the value of the home. While you are able to usually borrow the majority of your existing equity, only the value of the home is repaid afterwards. This safeguard is in place to prevent any debt from passing on to heirs or family members in the future.
5. You can't deduct the interest. Since a reverse mortgage is considered a loan and not a source of income, you are unable to deduct that monthly interest charge from your taxes. But, you also won't have to make a monthly payment either.
6. Use a specialty lender. With a lot of lenders to choose from and consider, you should consider one that specializes in these types of loans. It's a major decision to refinance a house. Be sure you are fully apprised of what's involved, and that you fully trust your lender before moving forwards.
You can find out more information about a reverse mortgage by visiting the HUD's website.
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