Know What a Reverse Mortgage Isn't
Part of the Reverse Mortgages For Dummies Cheat Sheet
A reverse mortgage can be a lot of things: a way to make ends meet, a nice chunk of change for a rainy day, a fabulous dream vacation, or a remodeled kitchen. But there's one thing it's definitely not — free money. There’s no free lunch here.
While reverse mortgages allow homeowners (who are at least 62 years old) to borrow against their home's equity and still maintain ownership of the home, your loan will need to be paid back, just like any other loan (whether it's due when you move or upon your death).
There are fees involved that can include payments to the originator, the appraiser, postage fees, recording fees . . . the list goes on and on. (These are the same sort of fees you paid for the mortgage that bought you the home you live in now.) You also have to pay interest on your loan, which is generally right around the interest rates on traditional mortgages.
You only pay interest on what you borrow, so any money that you don't use from your pool of reverse mortgage funds isn't charged.
A reverse mortgage is also not a direct value-to-dollar loan. You are loaned a percentage of your home value, based on age, interest rates, and area. Don't expect the full value of your home, or you'll be very disappointed. Before you make plans to spend money you don't yet have, go online and click on the reverse mortgage calculator. This very cool tool from the National Reverse Mortgage Lenders Association gives you an estimate of what you may be able to borrow.
Lastly, a reverse mortgage is not an all-encompassing loan that's right for everyone. Just because you qualify by being a 62-year-old homeowner doesn't mean you're an ideal candidate. To find out whether or not a reverse mortgage is right for you, here are a few of the basic questions you can ask yourself:
Are you at least 62 and own your own home?
Do you plan to be in your home for at least 5 years?
If you're getting the loan to purchase or pay off something specific, have you looked into other options for financing those expenses?
Are you comfortable with the terms of the loan?
The more of these questions you can answer "yes" to, the more ready you are for a reverse mortgage.