Once you become a homeowner, you have many options to use the equity in your home as a source of money when you need it. Although some insurance policies, like certain life insurance policies, offer ways to borrow money from your life insurance policy, many people turn to the idea of a reverse mortgage when they are in their 60s or older as a way to take some money out of what they Have invested in their home.
Be able to take a reverse mortgage once you are 62 years old.
What is a Reverse Mortgage?
A reverse mortgage takes the equity in your home and uses that to create income for you in the form of one or many payments. Payments are based on a portion of the equity in your home. It can be a slow and steady way to take the money you have invested in your home as cash.
Is a Reverse Mortgage a Good Idea?
It sounds like a good idea to many people, but there are a lot of potential issues with the reverse mortgage that you should be informed of before committing to this type of arrangement If the pros outweigh the cons of the reverse mortgage and your personal situation make it favorable for you, then you may want to look into reverse mortgage insurance options.
Types of Reverse Mortgages
There are several types of reverse mortgages:
- One-time reverse mortgages
- Proprietary Reverse Mortgages
- Home Equity Conversion Mortgages (HECMs)
Before deciding on the type of reverse mortgage you want, consider the different options and make sure Determine whether a fixed or variable rate works better for you, and whether you would benefit more from a line of credit, lump sum payment or payment option that provides the amount in installments.
Consumer Information Sessions can provide you with non-biased information that can help you in your reverse mortgage decision process.
Understand Reverse Mortgages and Insurance Requirements
When you buy homeowners insurance one of the things you provide your insurance company with is the information for your mortgage. It can be confusing understanding the difference between home insurance mortgage protection and reverse mortgage insurance protection because they are both about mortgages but do not cover the same thing.
Need Reverse Mortgage Insurance if you already have homeowners insurance or mortgage insurance
To understand this issue, we need to see what each insurance policy covers:
- Homeowners insurance
- Mortgage Insurance
- Reverse Mortgage Insurance
What is homeowners insurance coverage for mortgages?
Homeowners insurance adds a clause to the policy naming your lending bank or mortgage provider as the named insured on the policy. The reason for this is that if the house burns or the building is damaged and you still owe money on the mortgage, then the mortgage provider has to get checks on any claims made for repairing that damage to make sure that the building is repaired and rebuilt.
This is to protect the lender interest in the property. Until you pay your mortgage, they still own in the property.
What Mortgage Insurance Covers?
Mortgage Insurance or Private Mortgage Insurance covers the amount of the loan owed on the mortgage loan. You can purchase mortgage insurance through the lender, or you may be able to opt for term life insurance instead. Depending on your situation, an existing life insurance policy with sufficient value to cover your debt should always be reviewed with your financial advisor before you decide about buying more insurance. A financial planner can help you review what your needs are based on your situation.
How much money you can get out of a Reverse Mortgage?
One of the factors that determines how much money a homeowner will be able to get out of a reverse mortgage are the fees that the homeowner would have to pay as part of the reverse mortgage.
Reverse mortgage insurance is one of those fees.
Reverse mortgage insurance is a way the lender of the reverse mortgage to make sure they get their full payment back if the equity in the home ends up not being enough to cover what was borrowed in the reverse mortgage arrangement.
Does not have the equity in the Home Enough Guarantee for the Reverse Mortgage Lender?
Home equity is usually a good bet for the reverse mortgage lender, but there are still risks beyond the control of the lender and borrower that can jeopardize the value of the loan. A common reason is a decrease in the value of the home. Since in a reverse mortgage the lender is paid by the value of the home when it is sold, if for some reason the value of the property drops then the lender would not receive all of their payment and would then use the reverse mortgage insurance that the homeowner paid for up front in the original loan fees to receive the remainder of their payment.
What is HECM Reverse Mortgage Insurance MIP?
Home equity conversion mortgages (HECMs), which are federally insured reverse mortgages, will include a mortgage insurance premium (MIP) at closing and annually.
Can you cancel a reverse mortgage?
In many cases, if you sign up for a reverse mortgage, you may have a right of "rescission". Depending on the mortgage, this may allow you to cancel the mortgage if you do so within 3 days of signing. Before you make any decisions be sure and explore all options.
Is a reverse mortgage the only option if you are being rushed for cash
With a reverse mortgage is basically decided to use the equity you have built in your home to fund your retirement or other aspects Of your life, Remember that this reduces your asset value and is not your only option.
Reverse Mortgage Resources to help you make a good decision
If you are really strapped for cash, the reverse mortgage may not be able to solve all your problems, since you still have to do maintenance, And will still pay other homeowner costs. Many organizations provide useful information and resources to help you consider your options. Besides consulting financial advisors and trusted professionals, here are a few resources for you to check out as well: the Consumer Financial Protection Bureau and Reverse Mortgage Education Project.