Older couple shocked at paperwork

A Home Equity Conversion Mortgage (HECM) is becoming an increasingly popular tool for retirement planning. In recent years, the addition of homeowner protections, coupled with a better understanding of the responsibilities that come with these types of loans, give borrowers over the age of 62 a responsible way to access their home’s equity.

Still, pursuing a HECM, also known as a reverse mortgage, requires a serious approach to choosing the appropriate terms for your circumstances. In particular, eligible homeowners should take care to avoid these particularly damaging mistakes.

1. Overlooking Your Options

Not all reverse mortgages are the same. If you think a HECM might be right for you, you’ll want to spend some time exploring the various programs. Traditional HECMs can provide a lump sum or payments over time. A HECM for Purchase can reduce closing costs when transitioning to a new home and beginning a reverse mortgage. A HECM Line of Credit can offer access to funds when you need them but will grow over time if you don’t. Ask about all the features of each HECM loan program before making a final decision.

2. Accessing the Proceeds Without a Plan

This one should be obvious, and the mandatory loan counseling that a reverse mortgage requirement will reinforce the point. However, some borrowers may still overlook this important step. A reverse mortgage is a loan, after all, and it will eventually need to be repaid. Therefore, any decision to borrow against the equity in your home should include a clear plan for how the money will support your retirement goals. Letting the dollars disappear on non-essential spending is a huge mistake.

3. Not Telling Family Members

Although it remains the homeowner’s decision, a HECM can impact their heirs as well. It’s best to keep relevant family members informed about an impending reverse mortgage. Of course, they’ll want to understand how it’s improving your retirement. But they will also need contact information and details on how to manage or repay the loan if you become unavailable due to death or illness.

4. Failing to Account for Taxes, Insurance, and Maintenance

While one of the appealing aspects of a reverse mortgage is its deferred repayment, it doesn’t end all of your housing expenses. You are required to maintain your house in good condition, keep it insured, and pay property taxes when due. Be sure you are factoring those costs into your plan and accounting for possible increases to them over time.

5. Settling for any Lender

The same laws and regulations govern many reverse mortgage programs, regardless of the lender. But this doesn’t mean it won’t matter which originator you choose. You’ll want to find a mortgage lender with significant experience in the HECM industry. You should also seek out a loan officer willing to answer all of your questions and explore your options. Much like you would when buying a home, you should take time to shop around and compare lenders.

Start your search for a reverse mortgage with an experienced professional from Open Mortgage. Visit our website to learn more about your loan options or call today to begin the conversation.

Things to know about Reverse Mortgages:
  • At the conclusion of a reverse mortgage, the borrower must repay the loan and may have to sell the home or repay the loan from other proceeds
  • Charges will be assessed with the loan, including an origination fee, closing costs, mortgage insurance premiums and servicing fees
  • The loan balance grows over time and interest is charged on the outstanding balance
  • The borrower remains responsible for property taxes, hazard insurance, and home maintenance, and failure to pay these amounts may result in the loss of the home
  • Interest on a reverse mortgage is not tax-deductible until the borrower makes partial or full re-payment
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