Avoiding Common Reverse Mortgage Pitfalls

elderly couple looking at laptop

For seniors who have equity in a prior home loan, reverse mortgages are growing in popularity. These are loans for seniors at least 62 years of age, and allow them to pay no monthly payments until they pass away or move out of the home – in fact, many people actually receive money from a reverse mortgage, as long as they live in their home themselves.

Reverse mortgages can be very beneficial for some people, but they aren’t without risks. At Altius Mortgage and our partners, Mortgage Ogden, we’re here to help you navigate those risks. Here are a few common mistakes people make with reverse mortgages, and how you can avoid them.

Underestimating Fees

Reverse mortgages can be expensive, and can come with high closing costs – origination fees can be larger than conventional mortgages as well. In addition, you will have to pay HUD mortgage insurance up front. If you can’t afford these hikes in insurance, taxes and maintenance, a reverse mortgage might not be for you.

Title Removal

Some couples attempt to remove the younger borrower from the title so only the older borrower remains. The flaw here, though, is that if the older spouse passes first, the younger one is then responsible for paying the balance. If arrangements haven’t been made or instance doesn’t cover expenses, and the younger spouse doesn’t qualify for their own reverse mortgage, he or she might have to sell the home and move.

Condos

Not all condos will necessarily qualify for reverse mortgages, so don’t simply assume. Condos must meet tighter FHA regulations than single-family homes, and condo developments as a whole can be disqualified from reverse mortgages if a high number of owners are delinquent on association fees.

Scams

Reverse mortgage scams have risen in popularity right alongside the mortgages themselves. If a reverse mortgage broker is attempting to charge you crazy rates and fees, perhaps even as high as the original loan, this could be a telltale sign. Other scammers may provide fraudulent loans or attempt to steal identities. Our brokers can help keep you far away from these scams.

Losing Eligibility

Reverse mortgages can affect Medicaid benefits and Supplemental Security income, if you don’t take the right precautions. If you take all your money up front and deposit the proceeds into a bank account all at once, you could be making yourself ineligible for these benefits. Contact your financial advisor or SSI administrator before moving forward to make sure you’re in the clear here.

Want to learn more about reverse mortgages, or any of our other mortgage services offered? Speak to the mortgage brokers at Altius Mortgage and Mortgage Ogden today.

Why a Reverse Mortgage Might be Right for You

couple talking with loan officer

When most of us think of a mortgage, the first thing that comes to mind is a long term expense. That’s natural, after all – for plenty of people, a home loan is the largest and most extended bill they’ll pay in their lives.

As it turns out, though, there are situations where mortgages can give back. For retirees and seniors in need of a little extra cash, one of these options is a reverse mortgage, one of several services we offer to our clients at Altius Mortgage. Instead of paying money to a mortgage each month, people in a reverse mortgage actually receive money that they can use for other necessary purposes.

How does a reverse mortgage work, and might it be right for you? Let’s find out.

What is a Reverse Mortgage?

A reverse mortgage, also sometimes known as a home equity conversion mortgage (HECM – this is actually just by far the most common type of reverse mortgage, but others are very rare), is a home loan designed for people over the age of 62. It involves the loan lender taking on monthly payments rather than the borrower, and the loan is later repaid once the borrower either passes away or moves out of the home.

Borrowers still do have to pay homeowners insurance and any taxes or maintenance fees on their home, but they’ll receive payments that represent their equity in their home each month. There are fees attached here as well. Borrowers can receive their money in a lump sum, as a line of credit or as a monthly payment.

Benefits of a Reverse Mortgage

There are several ways a reverse mortgage can benefit you:

  • Access to more cash: Retirement is difficult for many people from a cash perspective, and a reverse mortgage is a great way to get a little boost.
  • Eliminates mortgage payment: Not only does a reverse mortgage change the typical order of things, for many people it serves as a way for them to pay off their mortgage itself. Many people put the savings from a reverse mortgage toward settling their existing mortgage debt or home equity line of credit. With reverse mortgages, home equity lines of credit cannot be frozen or reset.
  • Delay Social Security: Every year you delay social security payments, the larger your eventual benefit – as high as 8 percent a year in some cases. A reverse mortgage is a way for you to put off Social Security a bit longer and avoid other retirement income sources like a 401(k) plan (which are often high in taxes).
  • Counseling: Because reverse mortgages are for seniors, and because the home loan market has undergone some changes in recent years, anyone receiving a reverse mortgage must undergo counseling with a third-party agent who can make sure clients aren’t getting themselves into a situation they can’t handle.
  • Values can increase: Just like regular mortgages, the value of a reverse mortgage can increase during its life. Line of credit can expand quickly as part of a reverse mortgage.

Risks

There are a few potential drawbacks you’ll want to be aware of before you go down the road of a reverse loan. Fees are high, as are mortgage rates. You do have to repay the loan if you move out before you pass away, and you’re still responsible for all other home costs. Most importantly for some people, a reverse mortgage often means your home will not be passed on to future generations in your family once you die. For many people, the benefits of reverse mortgages exceed these risks, but for others they may not.

Ready to learn more? Our brokers at Altius Mortgage are standing by to assist you.

5 Financing Options for Your Next Home Loan

When people talk about getting a home loan it might sound pretty straightforward, but the truth is that there is more than one type of loan that you can get. Getting the right one can ensure that you are able to afford your monthly payments, your interest rates are as low as possible, and you can get the most home for your money based on the down payment you have available. Here are five options to talk to your mortgage lender about when you’re ready to get a loan.

Fixed-Rate Mortgage

The fixed-rate mortgage, which may also be called a “traditional” mortgage, is designed for homeowners with great credit, at least 10 percent to put as a down payment, and who plan to stay in their home for an extended period of time. This loan will have a fixed rate and fixed monthly payments for the life of the loan, and will generally range from 10 to 30 years. It’s a great option if you have excellent credit and interest rates are low.

Adjustable-Rate Mortgage

An ARM, or adjustable-rate mortgage, will have a low introductory rate for a fixed number of years, then the rate will fluctuate based on the market rates at the time. These type of loans are not necessarily bad, but are not the best option in every situation. For homeowners that plan to only be in the house for a short period of time (usually less than 5 years), getting the lower rate up front can keep payments low and allow you to sell before your rates change. It’s also a potential option if you believe that rates will go down in the future—in which case your payments will go down.

Interest-Only Loans

Most loan payments are structured with a portion going toward interest and another portion toward the principal balance. Interest-only loans have lower monthly payments because the homeowner is only responsible to pay the interest, with nothing paid toward principal. These are certainly not as common as they were a decade ago, but might still be an option for a short-term loan. Since you’re not paying down the balance of your original loan it’s not a feasible long-term option, and buyers will eventually have to refinance, pay off the balance with a lump sum, or increase their payments to begin paying down principal.

Reverse Mortgages

The reverse mortgage is only available for homeowners over 62 who want to turn the equity in their home into income. They have their own risks and obligations, and should be carefully considered and fully understood before any homeowner decides to get one. A mortgage lender can help explain the process and provide you with all the details.

Buydown Mortgage

As you pay down the total principal of your loan, your total interest paid over the life of the loan will go down. These mortgages allow you to pay a lump sum or a fee that buys down the amount of interest you will pay on the loan.

To learn about all the options available and figure out which is best for you, talk to a mortgage lender in Utah today.

Should You Consider a Reverse Mortgage?

You have been save your whole life for retirement, but when the time comes, sometimes you can find that your nest egg is not quite as big as you expected it to be, or that your expenses are higher than you thought. Fortunately today there are things you can do to help increase your retirement income without going back to work. One of the most popular, and perhaps one of the most widely advertised in recent years, is a reverse mortgage. While this is not necessarily the right choice for everyone, it might be an option for you. Here are some questions you can ask to find out.

 

1: Is This Something You Need?

 

A reverse mortgage is a great tool to help someone who is unable to meet his or her living costs and needs on their current retirement income. If you’re just getting it because you want to have extra cash to take a big vacation, or you’re planning to take the money and invest it elsewhere, there might be better options out there. As with any loan, there are costs associated with a reverse mortgage in Utah, so the benefits need to outweigh these costs.

 

2: Have You Calculated the Costs?

 

There are generally two types of reverse mortgages: one that you get the money upfront, another that you get paid over time.

 

For upfront loans, you will have to pay lender fees, mortgage insurance (based on the size of the loan), and closing costs. You may be able to pay these costs out of your loan fund, but that means you will get less cash from the transaction, and you will pay interest and ongoing mortgage insurance on those costs.

 

Loans paid over time will have costs associated with interest and ongoing mortgage insurance premiums—both based on the current loan balance. The exact interest rate depends on your reverse mortgage lender, so be sure to compare rates. For that reason it’s important not to take out a bigger reverse mortgage loan than you need.

 

3: Should You Use Your Home Equity Now?

 

Getting a reverse mortgage today means you will have less home equity to work with in the future, and if you need that money for future living expenses, healthcare, or another emergency it won’t be available to you. For that reason it’s important to evaluate whether you need the income now and wait before you get this type of mortgage if you don’t think you need it.

 

4: Do I Know How These Loans Work?

 

One of the most important things to determine before you get a reverse mortgage in Utah is whether you truly understand this type of loan, the costs, and what it will provide. They are different from traditional loans, so if you’re unclear about any of the costs or benefits, talk to your lender right away.