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Reverse Mortgages – What You Need to Know

If you are thinking about a reverse mortgage loan, here are things you need to know.

Lenders will now guarantee your interest rate for 60 days from the application date. That means that if rates go up before your loan closes, you get to keep the lower interest rate. If mortgage interest rates go down, you get the lower of the two interest rates. Reverse mortgages allows seniors 62 years and older that own homes to cash out part of the equity without to sell the home. The lower interest rates are, the more money they can cash out. A new rule, called the principal lock limit affects Home Equity Conversion Mortgages. These home equity mortgages are insured by the government.

Like their name implies, a reverse mortgage works opposite of the way regular mortgages work. Instead of making a monthly payment to a mortgage lender, the lenders pay the homeowner; the lenders pay a lump sum, a fixed amount every month, or they pay in the form of a line of credit. The homeowner will continue to own their home and still lives there as long as the property taxes and homeowner insurance is paid. This reverse mortgage becomes payable in full when the homeowner dies, moves out of the house, or sells the home.

Money received from a reverse mortgage loan is tax free and can be spent any way the homeowner chooses. A reverse mortgages can be costly. Because of this, mortgage experts say that the best candidates are seniors who aren’t planning on moving. In addition to interest charges, reverse mortgage expenses include origination fees, Federal Housing insurance premiums, monthly service fees, appraisal fees and closing costs. Usually the only upfront fee is the appraisal cost. The additional expenses are collected when the mortgage is repaid.

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