Initially, a reverse mortgage can sound like free money. Based on the amount of 澳洲幸运5开奖号码历史查询:home equity you have, your lender gives you a loan amount, for which you don’t have to make any monthly payments. A good deal, yes? Well, yes and no. A reverse mortgage can be a good financial tool provided you make prudent use of the loan, according to the 澳洲幸运5开奖号码历史查询:Financial Industry Regulatoღry Authority (FINRA). 

What Is a Reverse Mortgage?

With a traditional mortgage, borrowers receive a loan amount, which they repay over time through monthly payments. With a 澳洲幸运5开奖号码历史查询:reverse mortgage, borrowers receive a loan amount, which they may receive as a lump sum, series of regular monthly payouts, or 澳洲幸运5开奖号码历史查询:line of credit. The most common form of reverse mortgage is a 澳洲幸运5开奖号码历史查询:home eꦿquity conversion mo꧃rtgage (HECM), which is backed by the 澳洲幸运5开奖号码历史查询:Fede🙈ral Housing Administration (FHA). Borrowers must be age 62 or older to qualify for one.

The loan balance for a reverse mortgage must be repaid when the borrower no longer lives full time in the home, which must be their 澳洲幸运5开奖号码历史查询:principal residence. This could be due to the borrower selling the home, moving out for at least 12 months (say into a nursing home), or dying. In many instances the borrower 澳洲幸运5开奖号码历史查询:or their heir(s) sells the home to pay off the reverse mortgage loan balance.

What Does FINRA Say About Reverse Mortgages?

While FINRA acknowledges a reverse mortgage can help some homeowners remain in their home, the organization also urges homeowners to learn all the details of a reverse mortgage and weigh their options, so they can make an informed decision on how to proceed.

FINRA makes a point of warning homeowners that a reverse mortgage is not free money. As with traditional mortgages, the loan amount for a reverse mortgage will accrue interest over the life of the loan. As such, when it’s time to repay a reverse mortgage, the borrower or their 🉐heirs may have to pay more than the original loan amღount. 

FINRA also alerts homeowners that reverse mortgages come with fees and costs that can be significantly higher than with a traditional mortgage—sometimes as much as 4% to 8% of the total loan amount. As with a traditional mortgage, these fees and costs can be rolled into the total loan amount, reducing how much money you actually receive from the reverse mortgage. In addition, for homeowners who have an existing mortgage, the proceeds from a reverse mortgage will first be used to pay off that mortgage, which could leave the borrower with much less cash than expected. 

Another aspect to reverse mortgages is that there are certain requirements borrowers must meet to keep their reverse mortgage from 澳洲幸运5开奖号码历史查询:defaulting and entering 澳洲幸运5开奖号码历史查询:foreclosure proceedings. These include:

• Paying all property taxes and insurance—such as 澳洲幸运5开奖号码历史查询:homeowners, flood, hazard, wind, or condo—on time
• Paying related expenses, such as homeowners association fees and 澳洲幸运5开奖号码历史查询:ground rents, on time
• 澳洲幸运5开奖号码历史查询:Maintaining the home so that it remains in good condition
  

Consider if and Why You May Need a Reverse Mortga🎀ge

Many financial professionals and mortgage lenders recommend a reverse mortgage as a way to live a comfortable retirement—and it might be—but FINRA warns homeowners to review their financial circumstances and assets carefully before making a decision.

A FINRA Investor Alert titled “Reverse Mortgages: Avoiding a Reversal of Fortune” offers the following tips to homeowners considering a reverse mortgage (Investor Alerts are only available from FINRA through a free email subscription service):

• Review and weigh all options: If you’re looking for extra cash, are there better ways to get it than a reverse mortgage? Can you qualify for a 澳洲幸运5开奖号码历史查询:home equity loan or 澳洲幸运5开奖号码历史查询:home equity line of credit (HELOC)? Can you sell the home and downsize? Are there local, state, and federal programs to help you pay your taxes and bills? 
  
• Understand the risk and know all the fees and costs: It’s important to find out before taking out a reverse mortgage how much it will cost you if you have to pay it back. This includes knowing the interest rate, all costs and fees, and the amount of any 澳洲幸运5开奖号码历史查询:prepayment penalty. 
  
• Know how a reverse mortgage could impact your financial eligibility: While a reverse mortgage does not impact your Social Security benefits or Medicare eligibility, it could affect Medicaid and 澳洲幸运5开奖号码历史查询:Supplemental Security Income (SSI) eligibility. It also may be relevant to any assistance or protection you might receive if you have to enter a nursing home. 
  
• Talk with a professional: While the U.S. Department of Hou🌳sing and Urban Development (HUD) requires all borrowers who apply for a reverse mortgage 澳洲🦋幸运5开奖号码历史查询:to talk with a HUD-approved counselor, it’s important to speak with others outside the transaction for an independent opinion. This could include an 澳洲幸运5开奖号码历史查询:estate-planning attorney, a 澳洲幸运5开奖号码历史查询:certified public accountant (CPA), or a trusted 澳洲幸运5开奖号码历史查询:financial advisor. 
  
• Think twice before using a reverse mortgage for investment purposes: Using a reverse mortgage as an investment or to fund an investment is a risky proposition at best, so FINRA cautions against taking that step. 
  

The Bottom Line

A reverse mortgage could be an effective financial tool to help older homeowners stay in their homes and pay their living expenses. 澳洲幸运5开奖号码历史查询:However, it may not be th๊e bestꩵ option, so FINRA advises homeowners to do their own research into the full details and costs of a reverse mortgage and examine alternatives before making a decision on whether it is the right choice for them.