Reverse Mortgage

Should Seniors Consider a Reverse Mortgage to Raise Cash During the Pandemic?

Key Takeaways

  • A reverse mortgage is a unique loan, secured by the equity in your home, available to seniors 62 years of age and older.
  • There is no minimum credit score required for a reverse mortgage, you do not have to own your home outright, and you don’t sell your home to access the equity available to you.
  • You must remain living in your home and continue to pay all property taxes and routine maintenance required.
  • Reverse Mortgage applicants must also complete an approved reverse mortgage counseling course offered by an approved agency.

2020 is a year like no other.

The global coronavirus pandemic crushed the US economy in the first half of the year, leaving over 40 million workers without a job. Those near retirement or maintaining employment past the traditional retirement age of 65 face more significant long-term financial challenges because there is little time to recover from the immediate financial losses.

Using a reverse mortgage to raise cash during the pandemic is an option for some homeowners, but reverse mortgages do not come cheap or without other non-financial costs. Here are the factors to consider before applying for a loan.

What is a Reverse Mortgage?

Like a traditional mortgage, a reverse mortgage uses your home as collateral while allowing you to own and live in the house as long as you wish. However, unlike a traditional mortgage, you do not make monthly payments, and the debt balance grows each year you remain in the home.

The federal government insures most reverse mortgages through a Home Equity Conversion Mortgage or HECM.

Who Qualifies for a Reverse mortgage?

The key requirements for a reverse mortgage include the following:

  • You must be at least 62.
  • It is not necessary to own the home outright, but you must have a substantial amount of equity.
  • Only primary residences qualify.
  • You must have enough income or cash reserves to maintain the home and includes paying for property taxes and insurance annually.
  • You must pay for and complete reserve mortgage counseling through an approved agency.

There is no minimum credit score required to qualify for a reverse mortgage.

How Much Equity Can You Receive with a Reverse Mortgage?

Lenders use five key factors to determine how much equity they will approve. These include:

  • The value of the home at the time of the loan.
  • Level of current equity.
  • The age of all owners.
  • Current mortgage interest rates.
  • HECM program limits.

Higher age and lower interest rates give you access to more equity. In most cases, the maximum home value is $765,600.

Income Options for a Reverse Mortgage

Once approved for a reverse mortgage, you can receive money from the reverse mortgage in the following ways:

  • A lump-sum payment.
  • Access to a line of credit allowing you to make withdrawals up to the maximum allowed.
  • A series of consistent monthly or quarterly payments.

The Pros and Cons of a Reverse Mortgage

Reverse mortgages are a way to get cash at a time when low interest rates could give you access to higher amounts of equity. The loan also could provide money at a time when the stock market is particularly volatile.

The downside is that reverse mortgages are expensive and come with high fees. The debt grows over time, which could leave you without access to cash later in life. You must remain in the home to qualify, and the loan could diminish or eliminate the future value of your home and thus your heir’s inheritance.

Final Thoughts

In most cases, a reverse mortgage is an option of last resort. You ought to consider applying only after exhausting all other available choices. A cash-out refinance, or HELOC (home equity line of credit) are other ways to access home equity without selling.

If your financial hardship is temporary, a mortgage forbearance may be a better choice. The CARES Act requires lenders of federally backed loans to grant a forbearance of up to 12 months without paperwork.

Reverse mortgages are a long-term solution for ongoing financial shortfalls that will last beyond the current pandemic.

Frequently Asked Questions

Do I have to have good credit to qualify for a reverse mortgage?

No. There is NO minimum credit score required to qualify for a reverse mortgage.

Do I have to take the full amount of my approved Reverse Mortgage Loan?

No. You can choose to take a single lump sum payment, regular monthly or quarterly payments or you may choose to access a line of credit tied to the reverse mortgage loan which gives you the flexibility to withdraw funds as you need them, up to the full amount of the loan.

Can the bank force me out of my home while I have a reverse mortgage?

No. So long as you continue to maintain the home and pay all required taxes and HOA fees or dues, the bank cannot force you out of your home.

About Titan Consulting Group

Titan Consulting Group helps consumers evaluate various debt relief options and choose the right program that best fits their short-term and long-term financial goals. We work with consumers seeking debt consolidation loans, or who may be considering options like debt negotiation or bankruptcy. Through our network of partners, we can help you find the right solution to reach your goals and get back to living a life free from high interest credit card debt.

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