A reverse mortgage can be a quick fix to your financial needs and could also be a lifelong regret if done incorrectly.
For readers who are not too familiar with the term “reverse mortgage”, it is a type of loan approved by taking into account the equity of the borrower in a property.
It is available to those aged at least 62 and only entirely due to the death of the borrower. This means that so far you are residing in the house, there will be no payments due on the balance unless you decide to move out.
Below are some costly mistakes that anyone getting a reverse mortgage should avoid as much as possible:
1. Borrow more than necessary
A reverse mortgage is not free money. Although you don’t have to pay it back while you’re alive, it pays interest. Only access the money if you really need it, for example to renovate your house.
The amount you can get from a reverse mortgage depends on your equity in the property which is invariably determined by the value of the home. Your age is another factor that is taken into account before your application can be approved. To avoid borrowing more than you need, do a full assessment of why you need the money, then use All Reverse Mortgage’s Reverse Mortgage Calculator to estimate how much you qualify for. .
2. Get a Reverse Mortgage Immediately After the Death of a Spouse
There are no manuals or guides on the right way to mourn your spouse. But there is expert advice that you should avoid making big decisions during this time; at least in the first 12 months.
If you need to get a reverse mortgage during this time, make sure you have the support of your family. This can save you from costly mistakes.
It would also be helpful to employ the services of a reverse mortgage specialist. The expert would help you find and get the best deal for your purpose instead of falling into the marketing traps of reverse mortgage companies.
3. Hire the services of an inexperienced loan officer
The quality of loan officer hired for the process will determine the type of deal you get. Avoid dealing with experts who don’t have more than 20 reverse mortgages.
Experience comes with work, and the more deals a loan officer completes, the more likely they are to handle your transaction effectively. Plus, hiring an expert who’s been in the business for a long time gives the assurance that they’ll still be around for years to come in case you run into trouble.
4. Avoid property taxes and insurance
Ongoing payment of property tax and insurance is required to keep your home after getting a reverse mortgage.
Failure to do so will activate the violated clause in the loan document and the borrowed money will be due for payment even if you are still alive and not moving soon.
Borrowers who have squandered borrowed money without any other source of income to supplement are more likely to fall victim to this mistake. They are likely to lose their home as the lender may be forced to sell the property to the lender.
5. Neglect interest rates
As stated earlier, a reverse mortgage carries interest. The interest charged varies from company to company. This is why it is important to shop around before settling for a lender. When shopping, you should also check their ratings with the Better Business Bureau (BBB) before settling for them. You can also check out the lenders section at reversemotgage.org.
6. Not informing your heirs
In the event of death, the heirs are not required to repay the reverse mortgage but the company is entitled to sell the property to recover their money. The heirs interested in the inheritance will have to repay the balance of the loan before being able to claim it.
That’s why you need to let your heirs know about a reverse mortgage so they aren’t caught off guard when all of this unfolds.
seven. Keep it from your spouse
Not listing your spouse as a borrower on the reverse mortgage documents can also present a problem if you predecease them. Likewise, if you are moved to a nursing home, your spouse may not be able to continue living in the home.
The reverse mortgage clause only recognizes borrowers while anyone else not included is not considered. Once the loan is contracted, it is impossible to add other people to it.
It is important to discuss this with your spouse beforehand. You can take out life insurance with your partner’s name as the beneficiary. This will help offset the total refundable amount in case something happens to you.
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