For homeowners in need of extra money, reverse mortgages are frequently presented as a solution. Reverse mortgages can have a lot of strings attached. If you’re considering a reverse mortgage, it’s important that you carefully consider all of the requirements and terms involved.
These are some of the most important things to consider before agreeing to a reverse mortgage. To best protect yourself and your home, consulting with an attorney before agreeing to any sort of mortgage is a good idea.
Denbeaux & Denbeaux Law is a family-run law firm that strives to protect the rights of individual consumers. If you’re considering a reverse mortgage or are struggling to pay your reverse mortgage, contact us today.
What Is a Reverse Mortgage?
Before committing to a reverse mortgage, having the details of a reverse mortgage explained to you is very important. A reverse mortgage is the opposite of a typical mortgage. Instead of having the bank loan you money so you can purchase your home, you own the home, and the lender loans you money against the value of your home.
Reverse mortgages are primarily intended for older people, and using a reverse mortgage can be a tricky endeavor. It’s also important to be aware of any restrictions on how you can spend the money from a reverse mortgage. Most reverse mortgages are unrestricted, but some allow you to only use the money for things like home improvements.
What Are Reverse Mortgage Requirements?
The requirements for mortgages vary depending on the lender, but there are a few common reverse mortgage requirements. Most reverse mortgages require the borrower to be at least 62 years old. These mortgages are often intended to help seniors stay in their homes and pay for additional expenses after retirement. This is why reverse mortgages are often only available to people of retirement age.
Reverse mortgages also often require that your home be your primary residence and that you either completely own your home or have at least 50% equity in your home. People who don’t completely own their homes usually use some of the money from their reverse mortgage to pay off their remaining mortgage.
When Is a Reverse Mortgage a Good Idea?
If you’re wondering why would someone get a reverse mortgage, there are a few different scenarios that could make a reverse mortgage a good idea. If you meet the requirements for a reverse mortgage and completely own your home or have a significant amount of equity in your home, a reverse mortgage could be a helpful way for you to access some extra cash.
A reverse mortgage could be a good idea for someone who plans to stay in their home for a long time. If you plan on moving or have health problems that could require you to move, a reverse mortgage might not benefit you because once the home is no longer your primary residence, you will have to repay the loan.
A common condition on reverse mortgages is that the home must be kept in good condition. It’s important to consider if you can afford to maintain the home so you can keep your reverse mortgage in good standing.
A reverse mortgage can be a very good idea for people if they know their family won’t want to keep their home. If your family is going to sell your home once you no longer live there, getting a reverse mortgage means that the home can benefit you while still being able to be sold in the future. However, this will reduce the total value your family may be able to get for the home after the sale.
When Should Someone Avoid a Reverse Mortgage?
Before agreeing to a reverse mortgage, it’s important to be aware of all of the potential downsides of getting a reverse mortgage. If you live with someone who is under the age of 62 or who isn’t a co-borrower on your mortgage, getting a reverse mortgage could be harmful to them. If either of those conditions applies to someone, once you no longer live in the home, your reverse mortgage lender will sell the home, and they will no longer be able to live there.
Equity is extremely important in a reverse mortgage because it impacts how big of a loan you can get. If you don’t have a lot of equity in your home, you might not be able to get much of a loan, and a reverse mortgage might not be worth it.
Homes can carry sentimental value, and families may want to keep the property for future generations. If your family intends to keep your home, getting a reverse mortgage would make that more difficult. After you no longer live in the home, your family would have to buy the home from the bank or pay off the reverse mortgage to maintain ownership.
Pros and Cons of a Reverse Mortgage
There are a lot of different reasons that a reverse mortgage might be beneficial to someone, but there are also a lot of reasons that could make someone want to avoid a reverse mortgage. It’s important to consider the reverse mortgage pros and cons before agreeing to one.
Pros
These are a few of the best scenarios we’ve found that could make a reverse mortgage a good idea for someone.
Unexpected Costs
Reverse mortgages can be a great way for someone who is older and retired to have a new stream of income, especially for paying off unexpected expenses like medical costs.
Avoid Downsizing
Getting a reverse mortgage can also help you avoid downsizing if money is tight. Sometimes people are forced to sell their homes to get a smaller home with more affordable payments. But, if you have equity in your current home, a reverse mortgage can help you pay off your mortgage so you can stay in your home and have more money in your pocket.
Loan Repayment
One major benefit of a reverse mortgage is that the loan won’t have to be repaid out of pocket. As long as you maintain the terms of your loan, the loan won’t often have to be repaid until the house is sold, which can be done from the money made in the sale of the property.
Decreased Value
If the value of your home decreases throughout your reverse mortgage, you or the people who inherit your home will only have to pay the current value of the home. You won’t be left paying off a higher mortgage just because your home had a greater value at one time.
Cons
If any of these situations sound like they might apply to you or wouldn’t be ideal in your life, you may want to consider something other than a reverse mortgage.
Cost
It’s important to be aware that reverse mortgages can be costly. Overtime interest could accrue on an increasing loan balance, and you may end up owing more than the value of the home. If you have to leave your home earlier than you planned, you could end up without somewhere to live and a huge bill to pay.
Selling Your Home
Reverse mortgages will have to be repaid by you when you move out or by your heirs. Selling a home is the most common way to repay a reverse mortgage. If you’re planning on your family keeping your home, a reverse mortgage could make it difficult and costly for them to do that.
Reduced Equity and Inheritance
Taking out a reverse mortgage can reduce your equity in your home, and because of repaying the mortgage in the future by selling the home could also reduce any inheritance your family may have from your estate.
Home Maintenance Requirements
Depending on the details of your reverse mortgage, you may have to meet strict home maintenance requirements to maintain the value of your home. If this would be costly or difficult for you, a reverse mortgage might not be the best solution.
Reverse Mortgage Risks
With any type of loan, there are potential risks you should be aware of before making a decision. With a reverse mortgage, the main risk is your home being foreclosed on. If you fail to meet the requirements of your loan, you may be required to pay off your reverse mortgage early. If this isn’t possible, you could be in default on your mortgage and at risk of foreclosure.
The loan value is also important to be aware of because it could potentially result in foreclosure. Reverse mortgages with loan values that exceed the value of the home can lead to foreclosure if you can’t afford to stay in your home.
Reverse mortgage scams can also be a risk. Because reverse mortgages are intended for seniors, scams that prey on them are unfortunately common. A few tips can help you avoid reverse mortgage scams:
- Don’t respond to unsolicited ads or offers for reverse mortgages
- Don’t sign documents you don’t understand
- Don’t accept payments for a home you don’t own
If you think that you may have been contacted about a reverse mortgage, it’s a good idea to contact an attorney. They can help you identify a scam and work with you to make sure that you’re protected.
Speak With an Attorney Today
A reverse mortgage may be a good idea for you, but before you agree to one, it’s important that you understand exactly what you’re agreeing to and how it could affect you. It’s easy to feel like you know what you’re doing if you’ve had a mortgage before, but they can be very different from traditional mortgages.
If you’re interested in a reverse mortgage, an attorney can help you through the process. They can help explain exactly what a mortgage might offer and, more importantly, the potential risks attached and how you can avoid them.
Joshua Denbeaux is an experienced New Jersey attorney who focuses on protecting consumer rights. If you’re interested in a reverse mortgage and would like advice from an attorney, contact Denbeaux & Denbeaux Law today.
