Though reverse mortgages were once considered highly controversial, financial planners are beginning to see reversing your mortgage as a legitimate option for those who struggle with retirement savings. More and more people are finding it difficult to save up for a retirement fund. However, home equity “conversion” loans can aid those who have struggled to save by augmenting their retirement income. Part of the widely growing acceptance of reverse mortgages is due to the Federal Housing Administration tightening lending standards. Reverse mortgages are now a good tool for retirees.
What gave reverse mortgages such a bad reputation?
Put simply, overly aggressive brokers took advantage of the reverse mortgage system. These brokers gave loans to senior citizens who lacked financial savvy and profited from them in the form of large commissions. The system of reverse mortgages wasn’t polished enough, and during the Great Recession as many as 10% of all reverse mortgages fell into default.
Growing acceptance and higher standards
The FHA tightening the standards for those looking to reverse a mortgage helped to rectify a system that had previously made it easy to take advantage of clients. The newer standards make it harder for clients to make themselves vulnerable to financial disaster. For example, now the amount of equity a homeowner can take out in the first year is limited to 60%, removing the obvious temptation of taking out 100%. Taking out too much too soon can easily lead to the client being overwhelmed and causing their loan to go into default.
Credit standards were raised as well. Homeowners who don’t have robust finances or who have struggled with making payments in the past may now be expected to put money aside in an escrow account to cover future expenses. Additionally, to qualify for a reverse mortgage you must be at least 62. You must not only have substantial equity in your home, but also be able to keep up with taxes, insurance payments, and home repairs.
Balancing your funds while in retirement
If you decide to take out a reverse mortgage, it is recommended that you have another source of money to draw upon. For example, being able to draw funds from cash, home equity, and investments, can make your finances more stable. Having the choice to tap into different funds, depending on how the market is doing, can be extremely useful. When the markets are up, you can tap into your investments. When they’re down, you can shift to real estate.
Talk to the professionals at Stonebridge Mortgage Group about the possibility of reversing your mortgage.
For professional assistance and advice on reverse mortgages, look no further than Stonebridge Mortgage Group. If you’re ready to apply for a loan and want to go through the process online, Stonebridge Mortgage Group offers online applications. We can help you get pre-approved for a mortgage, walk you through the real estate loan process, and assist you with Stonebridge Mortgage Group serves the greater Portland area and are located in Gresham, Oregon.
Important Information to Understand
- At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds.
- Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees.
- The loan balance grows over time and interest is charged on the outstanding balance.
- The borrower remains responsible for property taxes, hazard insurance and home maintenance, and failure to pay these amounts may result in the loss of the home.
- Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full repayment.