If you run into financial issues as you age, you may be tempted to take out a reverse mortgage. After all, reverse mortgage companies make it look as if you’re borrowing from yourself. Here, we’ll lay out the good, bad, and ugly features of a reverse mortgage, as well as possible reverse mortgage scams you want to avoid falling prey to, so you can decide if borrowing from the equity in your home is right for you.
What is a reverse mortgage?
When you purchase a home, you typically make monthly payments to a mortgage company. A reverse mortgage turns that arrangement on its head. Rather than pay a lender to stay in your home, you receive payments each month from the equity in your home. The most common reverse mortgage is called a Home Equity Conversion Mortgage (HECM).
Not everyone is qualified to take out a reverse mortgage loan. Borrowers must meet the following criteria:
- Be at least 62 years of age.
- Spend the majority of the year in the home.
- Own the home outright or have a low balance on the mortgage (although you can use proceeds from the loan to pay off the remainder of the mortgage).
- Not be delinquent on any federal debt, including federal income taxes (again, you can use funds from the reverse mortgage to pay off federal debt).
- Agree to pay ongoing property taxes, insurance, and home repair costs.
- The property must be in good shape. If it’s not, the reverse mortgage lender will let you know what repairs must be completed before you qualify for a reverse mortgage.
- Receive…
