As with a traditional mortgage, with an HECM you borrow money and use your home as security for the loan. You must continue to pay property taxes, homeowners insurance, and make the necessary repairs to maintain your home or the lender can foreclose on the home. A reverse mortgage allows you to stay in your home for life even after you've used up your home's equity. Before you or a loved one apply for this type of loan, it's important to understand the circumstances under which a reverse mortgage may not provide lifelong financial security.
It's equally important to understand that, with a thorough understanding of how different payment plans work and how money can be used wisely, a reverse mortgage can help prevent older people from running out of money during retirement. You don't run the risk of losing access to a reverse mortgage line of credit such as a HELOC. Your home improvement costs include not only the price of the work being done, but also the costs and charges you'll pay to get a reverse mortgage. Therefore, waiting as long as possible to apply for a reverse mortgage may seem like a way to limit your chances of outliving earnings.
Here's how you could run out of reverse mortgage income too soon with each option and how to avoid that scenario. Regardless of the repayment plan you choose, if you have a younger spouse who doesn't borrow, you risk living longer than the income from the reverse mortgage if you die first. A reverse mortgage line of credit has additional features that reduce the risk of running out of money. Over the years, the media have highlighted unfortunate cases of older people losing their homes with a reverse mortgage.
This rule makes it easier for surviving spouses and non-borrowers to live longer than the income from the reverse mortgage.
Reverse mortgagestake part of the equity in your home and convert it into payments for you, a kind of prepayment on the equity of your home. If you decide to look for one, review the different types of reverse mortgages and compare before deciding on a particular company. Reverse mortgages are complicated and generally not the best option for older homeowners looking for access to extra money.
Obtaining a reverse mortgage line of credit as soon as it is eligible and then leaving it alone and letting it grow until you really need the money may be the best way to use a reverse mortgage, according to current ideas from experts in retirement and reverse mortgages, such as Wade Pfau and Jack M. As the article points out, the daughter of a reverse mortgage borrower submitted a form stating that she wanted to buy the property and that traditional funding had been approved for it. In fact, in some situations, it's illegal to require you to buy other products to get a reverse mortgage.