Reverse Mortgages, also known by their acronym HECM - Home Equity Conversion Mortgages, are a financial tool. This is a financial retirement tool, for Seniors 62 and over, which allows seniors to convert the equity into their house into a source of income. These loans can sometimes be complicated, and that's why there are commonly associated reverse mortgage pitfalls one should avoid.
When you're a senior, in many cases you are currently unemployed/retired. That means you're source of income is probably limited, and you have to be careful on how/where you spend your money. If you own your own house, and have equity built up in it, this equity can be released to you in the form of a reverse mortgage loan. This loan is like a traditional mortgage. This means that during the period of the loan, interest is charged on the amount borrowed.
You have to own your home, and there has to be equity in the home. Eligible homes, are single-family houses, or manufactured homes that were built after June 1976. Also, condominiums and townhouses also qualify.
Either you, or your spouse, must be at least 62 years or older. You must own the house.
Even if you have an existing loan, you can qualify. In many cases, many seniors use HECM to pay off their existing mortgage. For example, say you owe $100,000 on an existing first mortgage. If you are able to qualify for a reverse mortgage, and get $150,000 - you can use $100,00 of that $150,000 to pay off your existing loan, and then keep the rest ($50,000) as you wish.
Getting a reverse will not negatively impact your Social Security or Medicare benefits. If you're on medicaid, or SSI (Supplemental Security Income), then the funds you get from a reverse mortgage have to get used immediately. If you retain the money from the reverse mortgage, then this money can count as an asset, and negatively impact your possible qualification for ongoing medicaid/SSI.
How can I get paid
The funds from a this loan can be given to you in many forms. For example, you can get the funds as a lump sum all at once. You can also ask to get fixed monthly payments. Another option is you can use it as a line of credit(meaning take it in pieces). Generally speaking, the minute you take funds you are immediately charged interest. Even if the funds are simply sitting in your bank account, you are getting charged interest. As a result, what we recommend as the best option is using a reverse mortgage as a line of credit. That way you only get charged interest on the amount of money you use.
If you follow and understand the information given in this article, you will avoid many of the pitfalls that are commonly associated with getting a reverse mortgage. Reverse mortgages can have many pitfalls, but all of these can be avoided with simple preparation and careful financial planning. If you aren't careful, you'll be a victim of these pitfalls and end up suffering so be careful.