As with any mortgage, there are conditions for keeping your reverse mortgage in good standing, and if you fail to meet them, you could lose your home. The ways you could violate the terms of a reverse mortgage include:. If you fail to pay property taxes, for example, or keep the home properly insured, the loan servicer could advance available loan proceeds from the reverse mortgage to cover these expenses, Hicks says. If there are not adequate proceeds available to cover these types of payments, the servicer could elect to advance its own funds to make the outstanding payments.
A reverse mortgage can be a help to homeowners looking for additional income during their retirement years, and many use the funds to supplement Social Security or other income, meet medical expenses, pay for in-home care and make home improvements, Boies says. There are also flexible ways to receive the money from the reverse mortgage: a lump sum, a monthly payment, a line of credit or a combination.
Plus, if the value of the home appreciates and becomes worth more than the reverse mortgage loan balance, you or your heirs may receive the difference, Boies explains. There are also potential complications involving others who live in the home with the borrower, and what might happen to them if the borrower dies. Family members who inherit the property will want to pay close attention to the details of what is necessary to manage the loan balance when the borrower dies. Additionally, while not all reverse mortgage lenders use high-pressure sales tactics, some do use them to attract borrowers.
If a reverse mortgage sounds like a good idea for you, take time to research you options. Here are the top 10 reverse mortgage lenders as of , according to Home Mortgage Disclosure Act data:. As you shop for a reverse mortgage and consider your options, be on the lookout for two of the most common reverse mortgage scams :.
The best way to avoid a reverse mortgage scam is to be aware and vigilant. A reverse mortgage presents a way for older homeowners to supplement their income in retirement or pay for home renovations or other expenses such as healthcare costs.
There are eligibility requirements that specify who can take advantage of this kind of loan, how much money can be received and what the homeowner has to do to remain in good standing. A counselor can help outline the pros and cons and how this kind of loan might impact your heirs after you pass away. How We Make Money.
Ellen Chang. Written by. Ellen Chang is a freelance journalist who is based in Houston. For Bankrate, Chang focuses her articles on mortgages, homebuying and real estate. Her byline has appeared in …. Edited By Suzanne De Vita.
Edited by. Suzanne De Vita. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Reviewed By Robert R. Reviewed by. Robert R.
Johnson, Ph. Share this page. Bankrate Logo Why you can trust Bankrate. Bankrate Logo Editorial Integrity. Government-backed reverse mortgages are generally very safe. But many of the ads that consumers see are for reverse mortgages from private companies. Here are some things to look out for, according to the FBI :. In many cases, these scams get unwitting homeowners to take out reverse mortgages and give the money to the scammer.
In other cases, scams try to force homeowners to take out reverse mortgages at onerous interest rates or with hidden terms that can cause the borrower to lose their property. Alternatives include:. His focus is on breaking down complex financial topics so readers can make informed decisions. Select Region. United States. United Kingdom. Dock David Treece.
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Performance information may have changed since the time of publication. If you own a higher-valued home, you may get a bigger loan advance from a proprietary reverse mortgage.
So if your home has a higher appraised value and you have a small mortgage, you might qualify for more funds. HECM loans can be used for any purpose. HECMs and proprietary reverse mortgages may be more expensive than traditional home loans, and the upfront costs can be high.
How much you can borrow with a HECM or proprietary reverse mortgage depends on several factors:. In general, the older you are, the more equity you have in your home, and the less you owe on it, the more money you can get. Before applying for a HECM, you must meet with a counselor from an independent government-approved housing counseling agency. Some lenders offering proprietary reverse mortgages also require counseling. The counselor also must explain the possible alternatives to a HECM — like government and non-profit programs, or a single-purpose or proprietary reverse mortgage.
The counselor also should be able to help you compare the costs of different types of reverse mortgages and tell you how different payment options, fees, and other costs affect the total cost of the loan over time. You can visit HUD for a list of counselors , or call the agency at With a HECM, there generally is no specific income requirement.
However, lenders must conduct a financial assessment when deciding whether to approve and close your loan. If this is not required, you still could agree that your lender will pay these items. You are still responsible for maintaining the property. HECMs generally give you bigger loan advances at a lower total cost than proprietary loans do. In the HECM program, a borrower generally can live in a nursing home or other medical facility for up to 12 consecutive months before the loan must be repaid.
Taxes and insurance still must be paid on the loan, and your home must be maintained. With HECMs, there is a limit on how much you can take out the first year. Your lender will calculate how much you can borrow, based on your age, the interest rate, the value of your home, and your financial assessment.
Generally, you can take out up to 60 percent of your initial principal limit in the first year. There are exceptions, though. Decide which type of reverse mortgage might be right for you. That might depend on what you want to do with the money. Compare the options, terms, and fees from various lenders. Learn as much as you can about reverse mortgages before you talk to a counselor or lender. Is a reverse mortgage right for you? Only you can decide what works for your situation.
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