You’ve been settled into your Delray Beach real estate property for years now, and someone mentions reverse mortgages. Whether it is a commercial on TV, a letter in the mail or a friend down the street, reverse mortgages are a hot topic of discussion especially if you are 62 years old or older.
If you have ever considered a reverse mortgage on your Delray Beach real estate property, then you should find out as much as you can on them. Below is some basic information on reverse mortgages that you may want to consider for your Delray Beach real estate property or another residence.
What are Reverse Mortgages?
The Federal Trade Commission explains that reverse mortgages can help older homeowners convert a portion of their home equity into cash. They can pay off debt or any other unexpected expenses.
This extra monthly cash flow can help homeowners pay off the existing mortgage while staying in their home, so they are not forced to sell their Delray Beach real estate property if they happen to be short on cash.
Delray Beach Real Estate as Collateral
What this means is that reverse mortgages basically allow homeowners to use their properties as collateral. So if you are retired and would like to have extra money on hand to use during your retirement, then reverse mortgages may be the way to go.
With a reverse mortgage, the homeowner still keeps the title and everything that goes along with that, including insurance, property taxes, and other house maintenance costs.
Drawbacks on Reverse Mortgages
Although this may sound like a great deal for you, you do need to consider some of the drawbacks that go along with taking out a reverse mortgage loan.
Some important points to keep in mind:
- Free or fees: A lot of the advertising you see will mention the word free. The truth is that a reverse mortgage is not free. Typically, most lenders will charge an origination fee and other closing costs. There also may be a servicing fee attached to the deal or even mortgage insurance premiums.
- Tax-free: Another feature that seems to attach itself to reverse mortgages is tax-free. Reverse mortgages are NOT tax-free. In fact, the interest on reverse mortgages continues to grow over time and it not tax deductible until the loan is paid off.
- Repayment: The reverse mortgage loan will have to be paid off by someone when the home is either sold or you die. When the home’s ownership changes, the loan then will come due.
- Inheritance or Burden: When you sign up for this type of loan, the equity you’ve built up in your home will be used. If the money you were paid on the reverse mortgage equals or exceeds the value of the sale price of your house, there may not be anything left for your family.
If you do decide to look for one, review the different types of reverse mortgages. There are three kinds of reverse mortgages:
- Home Equity Conversion Mortgages (HECMs): This is a federally-insured reverse mortgage
- Single-Purpose Reverse Mortgages: Offered by some state and local government agencies, including Florida
- Proprietary reverse mortgages: Private loans
Be sure to comparison shop before you decide on a particular company to sign up with if a reverse mortgage seems like the right more for you.