Although reverse mortgages are markedly different from other loan types, the full responsibilities that come with putting your name on a deed are still in full effect. You should take several variables into account when you’re trying to figure out how much you are eligible to receive in monthly reverse mortgage payments or as a line of credit, as part of your reverse mortgage.
With this in mind, you’ll want to know that you’re getting into before you sign on a reverse mortgage.
Now that you know how much you could receive in reverse monthly mortgage payments, talk with a Mortgage Advisor to find a lender who can best help you. Contact a Mortgage Advisor at (888) 851-1301 or fill out our quick 1-minute form to have a Mortgage Advisor contact you.
The following information should help you calculate the costs, benefits, and risks that come with this unique type of loan.
With reverse mortgages, you can count on being charged servicing fees for cash advance, maintenance of your account, and more. Closing fees also apply and are often wrapped up into the loan, while interest is charged on the remaining loan balance, as per usual. But unlike with conventional loans, the outstanding balances on reverse mortgages grow over time, instead of shrinking, and interest rates usually shift over the life of the loan.
Expenses Associated With Reverse Mortgages Include:
Perhaps the reverse mortgage expense you want to avoid the most is what happens if you fail to meet the obligations you agree to when signing the loan. For instance, just failing to maintain your property can put you in a position where you must repay your loan right away. The same is true if you neglect to pay your property taxes and maintain your homeowner’s insurance policy. As you can guess, this is a huge financial expense that you don’t want to have to deal with.
Basic reverse mortgage rules say that the more you borrow on your loan, your balance grows. This makes sense, but what you might not realize is that this can cause other fees to pop up and be added to your loan throughout the life of your loan.
These servicing fees often vary depending on the lender. They are the expense you pay the lender for the maintenance of your account, for cash advances, and other services they render. These fees and expenses include the following:
Once the time for repayment rolls around, if you or your heirs wish to hold onto ownership of the property, your reverse mortgage loan must be paid off completely. Otherwise, the loan will need to be paid off by selling the property and giving the proceeds to the lender.
Because payments from reverse mortgage loans are not considered income by the government, borrowers do not need to pay taxes on them. You should also know that you’re not allowed to write off interest charges that come from your reverse mortgage when you file your taxes—that is, until these interest charges are paid.
As soon as the last remaining borrower vacates the house, either because of death, because they move elsewhere, or because the property is sold, the reverse mortgage loan must be paid in full.
In this case, the borrower or their heirs have a number of options. Most often, these properties are simply sold on the market, with mixed results. Sometimes, those selling the property will be anxious that they might end up selling the home for less than is owed on the reverse mortgage loan. Fortunately, reverse mortgages provide protection to borrowers in this regard.
On reverse mortgages, borrowers are required to repay only the value of the property when the time of repayment comes. The mortgage premium insurance that the borrower has been paying for protects the borrower in the event that the home sells for less than what is owed. Whatever debt remains is covered under the insurance policy of the borrower.
It is common for borrowers to be able to make some payments, if they so wish, on the loan before the time of repayment comes, and without any penalties. Keep in mind, however, that not all lenders allow this, so it’s worth discussing with your lender before you sign.
One of the most popular features of reverse mortgages is the different ways that borrowers can receive the proceeds from the loan:
Under this option, the borrower gets the full proceeds all at once, which is ideal for people who excel at managing their finances and may want to invest any surplus money that comes from the lump sum payment. This option also works well for people who need a large sum of money now (e.g. to buy a car or a vacation home).
At the outset of a reverse mortgage, the borrower and the lender decide on the length of the loan term and how much the monthly payments will be. If a term length isn’t required, monthly payments continue until the time that all borrowers vacate the property, either because of relocation or death.
In this option, the proceeds from the loan are set up as a line of credit, instead of as money sent directly to the borrower. This option still lets borrowers decide when they want to borrow the money and what they want to use it for, usually via checks or a credit card. To make sure expenditures don’t get out of control, maximum charge amounts are set on a HELOC. To further keep this under control, lenders will also decide on a draw period, the time during which the borrower can use money from the line of credit, which is usually 5-10 years. Interest on a HELOC is calculated on a daily basis as the outstanding balance can change from day to day depending on the borrower's spending. This means that the annual interest rate is divided by 365 which equate to be the daily interest rate.
The one big risk involved in HELOC is the speed at which interest rate changes can take effect, which is usually faster than on a lump sum. For example, if the interest rates were to shift in the middle of April, those changes would take effect for the borrower at the beginning of May. By contrast, on a lump sum, those interest rates changes wouldn’t kick in until the beginning of the subsequent year.
With these options in mind, borrowers can use a reverse mortgage calculator to figure out how much they will be eligible to receive, by taking into account several variables, including:
See how much you could get in monthly payments with a reverse mortgage and find out if you qualify. Contact a Mortgage Advisor at (888) 851-1301 or fill out our quick 1-minute form to have a Mortgage Advisor contact you.