You might think a reverse mortgage is a relatively new invention by the lenders. They’ve actually been around for quite a while, but banks really didn’t push them and seniors didn’t understand them. Most seniors, remembering the depression and the weight of debt, really didn’t have an interest in accumulating more debt. Senior advocacy groups kept pushing for the banks to offer them, and those groups also helped seniors become educated to the advantage of a reverse mortgage. Now, it’s not a bit unusual to see or hear a commercial for a reverse mortgage.
One thing that a lot of folks don’t know though, is that prior to getting a reverse mortgage from a mortgage broker, the homeowner must have reverse mortgage counseling. This counseling prior to a reverse mortgage must be through an independent source for HUD counseling. Reverse mortgages are tricky for homeowners to understand especially both the pros and the cons, so this counseling is a good thing to have.
What Will I Learn?
In the reverse mortgage counseling, the goal is to be sure you understand what it is you’re getting when you buy a reverse mortgage. If you only listen to the broker, or to the commercials, you won’t know much at all there are many other things to understand.
For example, what does having a reverse mortgage mean to your heirs? If you don’t get a reverse mortgage, when you die your home can be inherited by whoever you will it to. They can choose to sell it, if they wish, and then divvy up all the proceeds of sale among your heirs as the will specifies. If you take out a reverse mortgage, you will be gradually increasing the amount of the loan you have against your home. Upon your death, the home is sold, the reverse mortgage is repaid immediately from the proceeds of sale, and the leftover money (if there is any) is divided among your heirs.
During reverse mortgage counseling, they will also be sure you really need a reverse mortgage that a reverse mortgage is the best choice in your situation. Do you really need one? What will you do with the money if you get it? Do you understand the high cost of the reverse mortgage loans? Can you afford to be using up your home’s equity already? The more you spend now, the less there will be later when you might truly need it for medical expenses or home repairs, etc. Are there less expensive options you should consider?
What’s The Difference?
There are differences between a reverse mortgage and a traditional mortgage and during reverse mortgage counseling they will cover these differences. The largest differences are 1) you don’t need any income or good credit to be able to get a reverse loan, and 2) there are no monthly repayments to make on a reverse mortgage.
There are also similarities. Both kinds of loans are ways of adding debt to your home. And both affect the amount of equity you have in your home. For many homeowners, that’s exactly what they want to do spend the equity in their home while they continue to live in it, and to not need to make any repayments. For them, a reverse mortgage is perfect. Counseling is only a formality.