Some Costs Don’t End With a Reverse Mortgage
A mortgage minus the monthly payment is an attractive offer. For homeowners over the age of 62 and with substantial equity, it’s also a realistic one. A Home Equity Conversion Mortgage (HECM) provides a loan based on a home’s value and deferred repayment while the property is the borrower’s primary residence.
However, that doesn’t mean your housing costs will completely disappear. For traditional mortgage holders, a monthly mortgage payment often includes more than just the principal and interest. Similarly, those with a reverse mortgage should know which costs should remain a part of their budget.
Whenever a lender is invested in your home’s value, they want to protect it. Regardless of whether you have a HECM or another type of mortgage, it’s crucial to guard against a worst-case scenario. Otherwise, you could end up with a property that isn’t worth anything close to the loan’s balance.
With a home insurance policy, a home that is damaged or destroyed by a natural disaster, fire, or other peril can be repaired without the homeowner bearing the total cost. For many, these insurance premiums are added to a monthly mortgage payment. Those with a reverse mortgage in place will need to continue paying for an adequate home insurance policy on either a monthly or annual basis.
In some states, property taxes can be a significant expense. With rates approaching or exceeding two percent of the home’s value in many jurisdictions, they can easily cost thousands of dollars each year. And when home prices are rising, taxes are likely to do the same.
Fortunately, many entities will offer additional exemptions or tax freezes for older homeowners to counter lower incomes and increasing taxes. If you are considering a reverse mortgage, take a close look at the tax liability that comes with your home and how it may change depending on your age. Regardless, you’ll be responsible for paying the bill each year if you want to keep your eligibility for a HECM.
Since most reverse mortgages continue until the homeowner passes away or has to leave home due to their medical condition, it may be many years before the loan is repaid. In some cases, repayment is accomplished when heirs sell the house or allow the bank to foreclose.
Preserving a home’s value until that time comes requires maintaining the home in the meantime. That’s why one mandate of a HECM is for the property to be kept in good condition. Major deficiencies need to be addressed promptly, and a maintenance plan should be in place to avoid unnecessary repairs. Proactive reverse mortgage applicants should have some money set aside to stay ahead of these inevitable issues.
Make mortgage planning a part of your retirement strategy. Visit https://openmortgage.com for more information about our reverse mortgage options, or call today to speak with an industry expert.
- 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