Considering a Reverse Mortgage? Read This Before You Apply

by MARINA YUKHO 03/21/2020

Photo by Alexander Mils from Pexels

If your wealth is tied up in your home, how can you free up some cash? A reverse mortgage is available to homeowners with mostly or fully paid-off mortgages. The monthly payments, which come from the lender to you, are not counted as taxable income. But there are mortgage taxes, and interest rates on reverse mortgages are somewhat higher than the current rate for a normal mortgage.

The FHA's Ever-Popular Reverse Mortgage Offering

Are you 62+? Consider the home equity conversion mortgage, available through the FHA. An approved counselor will lay out the process and point you to a qualifying lender. 

Then, here's what you should expect:

  • There are initial and annual fees, as well as recording fees.
  • Expect credit checks.
  • And yes, you do need an appraisal, inspection and a title search. 
  • In contrast to the usual custom with a regular mortgage, as the AARP points out, you'll probably have to pay the home insurance and local property taxes yourself.

The more you borrow, and the longer the term of your loan, the heftier cumulative interest charges you'll pay.

The Other Ways to Get to Your Home Equity 

Of course, you might sell and downsize. Not ready for that move? Think about...

Cash-Out Refinancing

If your credit score is 640 or above and you have a mortgage, consider cash-out refinancing with the FHA. This replaces your present mortgage with a larger one. The larger loan pays off your mortgage, replaces it and gives you the extra funds in a lump sum. You can be younger than 62. 

The Private Reverse Mortgage

Put up your home as collateral and enter a loan agreement with a close friend or relative. It's not altogether "private" — private reverse mortgages have a standard interest rate, governed by the IRS — but the rate is lower than a bank's.  

The HELOC 

A home equity line of credit (HELOC) empowers you to tap into your home equity. It's something like a credit card: there's a set credit limit. You only need to pay interest on what you withdraw. Note that HELOCs do not come with fixed interest rates.   

The Home Equity Loan

An alternative to the reverse mortgage that can work when you need cash upfront is the home equity loan. You'll pay interest on the lump-sum amount.

Best of Luck (and Patience)!

If there's one thing you must have before applying for a reverse mortgage, it's patience. A reverse mortgage, like a conventional mortgage, involves a full approval process, including those pesky calls and queries about proof of your capacity to repay the loan.

But the result can make it all worthwhile. 

About the Author
Author

MARINA YUKHO

Originally from Belarus, I've moved to Sarasota Florida over 25 years ago and have made this beautiful place my forever home! I absolutely love living here, and I enjoy everything Sarasota has to offer; a sense of community, beautiful beaches, people and everything in between.

With over 15 years of combined professional experience in the mortgage and real estate industry, I have an in-depth understanding of both sides of the transaction. My extensive knowledge of this region and local market, give me the enthusiasm and a desire to make my home, your home. I'll make sure that you make an informed and best real estate decision possible. I believe in building and maintaining the relationship with all of my customers by providing excellent service, working hard, listening and following through. 

My promises to you are:

-To Be on Time - To Be Honest - To Do What I Said I will do-

My goal is to achieve the best outcome in every transaction and to ensure that the home buying or selling process is fun, easy and stress-free. You can count on me to be available when you have any questions or concerns. Whether you are buying or selling a home, I would be honored to have an opportunity to assist you, to answer all your questions and help you with all of your real estate needs.

When I am not working, I spend my time reading, working out, or spending time in the company of my family and my furkid, Mako, the dog. I enjoy going dancing with my friends, photography and often volunteer at Sarasota Humane Society to help animals to find their forever homes. I am fluent in Russian and English languages. 


Want to start a conversation with me? Here are good topics - Dogs, coffee, bacon, dark chocolate, Zumba, photography, and of course... Real Estate!


Let's find you a place you can call Home!