As more and more financial advisors recommend reverse mortgages as a financial planning tool, the home equity conversion mortgage (HECM) program is finally getting the attention it deserves. But, while it can be used to help seniors in all kinds of financial situations, there are – like any financial product – some risks involved with taking one out.
Our goal at One Reverse Mortgage is to educate you on your financial options and how a reverse mortgage may be one option to fit into your life. That also includes being open and honest about reverse mortgage risks. We are the first to say a reverse mortgage is not for everyone. Everyone’s situation is different and if you are seeking a financial solution we are here to help. It is best to speak with a professional. Our licensed experts will be able to help you decide if it is right for you and discuss any concerns. Here are a few points to bring up with your licensed expert.
The Homeowner’s Responsibility
While you no longer have to pay a monthly mortgage payment, you are still responsible for paying homeowners insurance and property taxes. You must also maintain your home. This is the same requirement if you take out a more traditional mortgage as well.
If you do not stay current on your property taxes, homeowners insurance, and home maintenance, you may have to foreclose on the home.
On the same topic of homeowner responsibility, you are also responsible for how you spend your proceeds. While you can spend the money however you want, it may not be wise to blow it all during one trip to Vegas, use it to buy unnecessary items, or give it all away to friends and family.
Reverse Mortgage Costs
As it is with many other loans, the HECM comes with some costs. These include the Upfront MIP, Origination Fee, and Servicing Fee. There are also expenses that fall into another category, “other costs.” These include appraisal fees, escrow costs, and counseling fees. Some of these can be rolled into the loan, but be prepared to have to spend some money to close the loan.
It is important to know how the loan comes due. A HECM loan generally becomes due and payable if you (or an eligible non-borrowing spouse during a deferral period) move, sell the property, or pass away. The loan also becomes due and payable if you (or an eligible non-borrowing spouse during a deferral period) fail to maintain the property or fail to pay property taxes and insurance premiums.
As we stated before, these risks are not meant to deter you from pursuing a loan. We just want to make sure you make an educated decision. It is best to speak to a licensed expert, who can get more personal information from you and better customize the program to meet your needs. The phone call is no obligation.