Reverse Mortgage Basics Made Easy
in Delaware
Sponsored by The Seniors Right to Know Network
A reverse mortgage is a loan against your home that you don't have to repay as long as you live there.
When you purchased your house you had a regular or forward mortgage (15 year, 30-year, or adjustable rate, etc.), and as you made your monthly loan repayments your mortgage debt continued to go down over time until you've have paid off your mortgage in full or lowered it significantly. Meanwhile, your equity is rising as you repay your mortgage and as your property value continues to appreciate over time.
With a reverse mortgage, you now go full circle. Now your hard work and investment are going to pay off and with a reverse mortgage you can now receive a lump sum, monthly payments, credit line or a combination of all three. Now you get the money in reverse. Interest on the money will continue as you keep getting cash advances, make no repayment, and the interest is added to the loan balance (the amount you owe). That's why reverse mortgages are often called rising debt, falling equity loans, however, keep in mind that your homes equity historically has shown it should continue to appreciate over time, yet there are no guarantees.
How does a Reverse Mortgage Differ From Regular Mortgage? There are 3 Important Ways:
- To qualify for a regular or traditional mortgage, the lender checks your income to see how much you can afford to pay back each month. With a reverse mortgage, however, you don't have to make monthly repayments. Therefore, your income is not a requirement for a Reverse Mortgage.
- With a regular mortgage, you can lose your home if you don't make your monthly repayments, however, with a reverse mortgage you can't lose your home by failing to make monthly loan payments because you don't have any payment to make, all you have to do is maintain your home in good repair, pay your property taxes and insurance.
- When you qualified for your original purchase, the lender checked you credit to make sure you paid your bills on time, used a credit score, & calculated your percentage of debt to your income. However, with a reverse mortgage, we don't look at your credit score or debt ratios.
A reverse mortgage is worth your consideration if it fits your particular circumstance. A reverse mortgage will allow you to cost-effectively tap into your home's equity and enhance your retirement and insure financial independence. If you have some bills to pay, want to buy some new carpeting, furniture, need to paint your home, or simply feel like eating out and traveling more, a reverse mortgage may be the perfect solution.
How valid are common objections?
If you're like most senior homeowners, you worked hard for many years to eliminate your mortgage so you'd own your home free and clear or have a very low mortgage balance. After what you've gone through, the thought of reversing that process and rebuilding the debt owed on your home can be hard to fathom. Furthermore, a reverse mortgage can have many misconceptions. We can answer your questions & give you a comfort level by providing the proper information to make an intelligent informed decision as to if a reverse mortgage is right for you.
Getting a Good Deal
If you’re considering a reverse mortgage compare your options and the terms various lenders offer. Learn as much as you can about reverse mortgages that can help inform you about the questions you ask that could lead to a better deal.
- If you want to make a home repair or improvement – or you need help paying your property taxes – find out if you qualify for any low-cost single-purpose loans in your area. Area Agencies on Aging (AAAs) generally know about these programs. To find the nearest agency, visit www.eldercare.gov or call 1-800-677-1116. Ask about “loan or grant programs for home repairs or improvements,” or “property tax deferral” or “property tax postponement” programs, and how to apply.
All HECM lenders must follow HUD rules. And while the mortgage insurance premium is the same from lender to lender, most loan costs, including the origination fee, interest rate, closing costs, and servicing fees vary among lenders.
- If you live in a higher-valued home, you may be able to borrow more with a proprietary reverse mortgage, but the more you borrow, the higher your costs. The best way to see key differences between a HECM and a proprietary loan is to do a side-by-side comparison of costs and benefits. Many HECM counselors and lenders can give you this important information.
- No matter what type of reverse mortgage you’re considering, understand all the conditions that could make the loan due and payable. Ask a counselor or lender to explain the Total Annual Loan Cost (TALC) rates: they show the projected annual average cost of a reverse mortgage, including all the itemized costs.
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