The Benefits of a Backward Mortgage

In retirement, one is better able to control spending. 

After retiring, many people's income drops drastically, and for many, the home payment is the single largest expense they have. You may keep up with your bills and maintain your standard of living even if your income has decreased by taking out a reverse mortgage. 

Do not worry about changing location. 

As you get older, a reverse mortgage might help you stay in your own house rather than moving (and potentially stay near friends and family). Furthermore, while a reverse mortgage loan alameda does have costs, it may be less expensive in the long term than selling the current home and buying a new one, or even renting elsewhere. 

There will be no tax liability for you to worry about. 

The Internal Revenue Service (IRS) does not consider the money you receive from a reverse mortgage to be "income," but rather "loan proceeds," so you don't have to pay taxes on it. However, before agreeing to a reverse mortgage, you should consult a tax specialist for assistance due to the complexity of tax requirements. 

If the mortgage is more than the value of your home, you have some security. 

Over time, a reverse mortgage's outstanding balance can rise above the home's worth. However, because a reverse mortgage is a type of "non-recourse" finance, the total amount of debt that must be repaid can never exceed the value of the property. As a result, your mortgage lender can't go after any of your other property or heirs if you die. 

The people you leave behind can choose between a few different paths. 

Unless the borrower prepays the loan, a reverse mortgage will remain in effect until the property is sold, the borrower moves out, or the borrower passes away. Successors to an estate have a few options: If the value of the property is greater than the reverse mortgage balance, the heirs can sell the home and keep the equity, while if the debt is greater than the value of the home, the heirs can settle the loan by transferring ownership back to the lender. Lenders can then go to their insurance company and demand payment for any remaining balance (almost always the FHA). 

Downsides of a Home Equity Conversion Mortgage 

Expenses are inevitable. 

Closing costs, FHA insurance premiums, and lender fees all add up when getting a reverse mortgage. The maximum origination fee is $6,000. Borrowers have the option of adding these expenses to the outstanding loan sum, but doing so reduces their equity and increases their debt. If your interest rate fluctuates every month, you may additionally have to pay a monthly servicing cost of $35 or more. 

Until the loan is paid in full, the interest cannot be deducted. 

When you were making payments on your mortgage, you could deduct the interest from your taxes; however, with a reverse mortgage, you will not be able to do so. That benefit is only available while you are making payments on the loan. 

It's possible that you will accidentally go against some other part of the program's rules. 

If you receive government assistance like Medicaid or Supplemental Security Income (SSI), you may find that a reverse mortgage disqualifies you from receiving that assistance due to your high net worth. This is intricate business; before looking for a reverse mortgage program, you should consult with an elder law attorney or a legal aid clinic. 

It is possible to go through a foreclosure on your property. 

Considering there are no regular payments to make toward principal or interest on a reverse mortgage, foreclosure may appear unlikely. However, if you fail to pay your mortgage, HOA dues, and/or property taxes on time, you may lose your home to foreclosure. 

As your status shifts, it may be difficult for you to adjust. 

Reverse mortgages are intricate, and if your circumstances alter, so may your available reverse mortgage possibilities. Would you still be considered a resident of your home if, for instance, you moved into a long-term care facility? Should a surviving spouse leave the home upon the death of the reverse mortgage borrower? To get answers to these and other legal problems, it's advisable to see a lender, an elder law attorney, or a free legal clinic.