The reverse mortgage is one of the most misunderstood home loans there is. Most Americans don’t know how it works because it only applies to the elderly; the typical minimum age requirement is 62. Its purpose is to tap the accrued home equity without dealing with a monthly mortgage payment. The costs of the loan will only be due when the property is no longer the primary residence of the borrower.
A reverse mortgage is an excellent source of money, especially for retirees who have limited income. To understand it well, let’s debunk the most common misconceptions about it:
The Title Stays on the Lender
All reverse mortgage lenders like Primary Residential Mortgage, Inc. would say that the property title doesn’t have to change hands after the deal. The other party would be the holder of the lien only when you fail to meet any of its requirements. You can hold the title until the loan matures, or you pass away, decide to move, or sell the property.
The Current, Conventional Mortgage Has to Mature First
You can’t apply for a reverse mortgage if you have an existing conventional home loan. You can use its proceeds to pay off your current mortgage at closing, though.
The Property Taxes and Homeowners Insurance Premiums Are Rolled into the Loan
Mortgage-related costs, such as the principal, interest, and other fees, don’t have to be paid on a monthly basis. However, you can’t miss any property tax and insurance payments. These “payments” might be new to you, but that’s only because they might have been included in the monthly housing payments of your old or current home loan. But with a reverse mortgage, you need to pay for them separately. Otherwise, you might break the contract, making everything you owe be due immediately.
The Loan Can Get You Evicted If You Leave for a While
You’ll have the freedom to leave the house, or even take a vacation abroad, as you please. What you can’t do, though, is staying somewhere else for 12 successive months. Your reverse mortgage lender might consider your extended absence unacceptable, requiring you to repay the loan in full.
The Maintenance of Your Property Is No Big Deal
Since the property will be used as security, you’ll be responsible for its upkeep. If you procrastinate necessary repairs, its deterioration might be taken against you. In turn, you might be required to pay off your reverse mortgage immediately.
A reverse mortgage is not without risks, but it’s an attractive alternative to cash-out refinance if you no longer qualify for it. Exercise your due diligence to determine whether it’s for you or not.