Homeownership is part of the American dream. Owning your home can pay off, especially when you’re older, as people above the age of 62 have the option of taking out a reverse mortgage on their homes. Instead of making payments to a lender, with a reverse mortgage, the lender pays you.
It might sound too good to be true, which is why it’s essential that you understand the full details of a reverse mortgage before you get one. If you apply for a Home Equity Conversion Mortgage (HECM) from the Federal Housing Administration (FHA), reverse mortgage counseling is a requirement before you get the loan. Counseling will help you better understand what’s involved and whether a reverse mortgage is right for you.
How a Reverse Mortgage Works
One of the first things you’ll go over during a reverse mortgage counseling session is how the process works. While reverse mortgages let you borrow against the equity in your home, how you receive the money can differ. Your counselor will review the difference between lump sum, single disbursement options, tenure options, and term options for payments. Looking at your current situation, the counselor can help you pick the best disbursement. If you have a high medical bill, a lump sum might make the most sense. If you need to supplement your retirement income, tenure or term payments can make more sense.
You’ll also learn when you’ll be responsible for repaying the money, and what the terms of the repayment might be. During counseling, you’ll get more details on how much you are eligible to borrow and details on any consequences of getting a reverse mortgage.
What Other Options Are Available
A reverse mortgage counselor isn’t a salesperson and shouldn’t pressure you into applying for the loan. Instead, the counselor should let you know about any other options available to you that might be a better fit for your needs. For example, along with the reverse mortgage program offered by the FHA, there are also private loans, known as proprietary reverse mortgages, available. You might also qualify for certain federal or state government programs that can help you financially, without you taking on debt. Your counselor can also discuss the pros and cons of selling your current home or downsizing instead of borrowing.
If It’s the Right Choice for You
Your counselor should help you weigh the pros and cons of a reverse mortgage and see if it is the right option for you or not. During counseling, you’ll review what impact the mortgage has on your home, which can influence your decision. For example, after you move out of the home or die, the mortgage needs to be repaid. If you were hoping to pass your house down to your children, taking on a reverse mortgage can mean that they don’t get the home or that they need to pay back a considerable sum to keep it.
Aside from being a requirement for the FHA HECM, reverse mortgage counseling can help you see if you’re making the decision that makes the most sense for your current situation. CESI is a HUD-approved housing counseling agency and our team of reverse mortgage counselors is ready to speak with you. Contact us today to schedule your session, either over the phone, online or in-person.
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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.
CESI is NOT A LOAN COMPANY