Reverse Mortgages in
Rancho Palos Verdes
You may have read about reverse mortgages on AARP’s website or elsewhere, and wanted to know more. A Home Equity Conversion Mortgage (HECM), or reverse mortgage, is a great way for people over the age of 62 in Rancho Palos Verdes to turn some of the equity in their home into cash. This cash can be used to purchase a new home, keep up with retirement living expenses, or anything else you might need. If you’re considering one of these loans, you’ll want to know the reverse mortgage pros and cons—before you dive in. Let’s start with the pros.
Benefits of a Reverse Mortgage
Not only does a reverse mortgage allow you to convert your home equity into cash, but also that cash is not subject to any taxes. The money you get from a reverse mortgage is considered a loan advance, rather than income, so it is not taxed. This also means that it will not affect your social security or Medicare benefits. Although a reverse mortgage could affect your eligibility for Medicaid or other needs-based benefits. A reverse mortgage can still be done and leave the Medicaid in place, but it will take planning to accomplish this.
No Monthly Payments
Another benefit of a reverse mortgage is that, although it is a loan, you do not have to make monthly interest payments on it. Interest still accrues on the money for the life of the loan, but you do not owe any interest money until the loan is over. That occurs when you either move out of the house or pass away, so interest costs can often be covered by proceeds from the sale. The HECM and Jumbo’s are non-recourse loans, so after the last person on the loan passes, they or their heirs will never owe more than the value of the home at that time.
Indeed, since HUD regulates HECM reverse mortgages, they are FHA-insured against your being required to repay more than the value of your home. Jumbo reverse mortgages are not FHA-insured, but offer the same protection against owing more than the value of your home at the end of the term without the upfront costs. Jumbo’s allow you to borrow above the FHA’s lending limit of $679,650, and are designed for high-value homes, typically over $1.2 million.
Multiple Payout Options
When you get a HECM reverse mortgage, you can choose between several options to receive your payment: a lump sum, a line of credit, or monthly payments. Reverse mortgage lenders allow you to combine two of these payment methods, or all three. A fourth payment option is using your reverse mortgage to purchase a new home. These options offer you flexibility unavailable in most traditional loans.
Costs of a Reverse Mortgage
Fees & Closing Costs
While the fees and closing costs of a HECM reverse mortgage can vary, they can be higher than a traditional mortgage and higher, in most case, than a Jumbo. When you get a reverse mortgage, you usually have to pay an origination fee, mortgage insurance premiums (MIPs), and third-party fees like appraisal, title, and inspection. Depending on a number of variables, these fees may or not be more than they would in a traditional mortgage, but you should be prepared to have higher costs. A reverse mortgage calculator can help you in figuring the costs.
Getting a reverse mortgage means you are making a tradeoff. Getting cash now means that you are surrendering some or all of your equity down the road. If you are comfortable making that trade, a reverse mortgage could be worth it for you.
Do you own a home in Rancho Palos Verdes? Are you thinking that a reverse mortgage just might be right for you? Apply today to get started on your loan.