Reverse Mortgage Basics
Remember, you can control the amount of credit that remains in your account. The less cash you take out now, the more will remain for later. It doesn’t make much sense to set up a creditline and then not use it. But you should also avoid using too much too soon.
For example, if you spend all the cash in your creditline, will you still be able to pay your property taxes and homeowner’s insurance? If you fail to make these payments, and there is no cash left in your creditline, a HECM lender can foreclose on your loan. Just like with a forward mortgage, if you do not pay your property taxes and insurance, you could lose your home.
So be certain to leave enough cash in your creditline to pay your taxes and insurance if you do not have other funds available for this purpose.
Investing
Investing the money you get from a reverse mortgage is a highly questionable practice. It is extremely unlikely that you could safely earn more from an investment than the loan would cost.
Careful Spending
Be wary of anyone who wants to sell you something, and suggests a reverse mortgage as a way to pay for it. Be especially wary if
- you do not fully understand what they are selling; or
- you are not certain that you need what they are selling.
Remember that the total cost to you equals the cost of what they are selling plus the cost of the reverse mortgage. If you conclude that you do need what they are selling, be sure to shop around before making a decision. You are under no obligation to buy goods or services from the party that suggested you borrow against your home to pay for them.
Refinancing
After you get a reverse mortage, sometime in the future you may be able to increase the loan funds available to you by refinancing the loan. Large increases in your home’s value, increases in HUD’s 203-b limits, or lower interest rates could make this possible.
When you refinance a HECM, lenders are required to show you the total cost of refinancing, and compare it to the increase in available loan funds that a refinance would provide.
This comparison makes it easy for you to see the total costs that would be added to the amount you owe versus the additional loan funds that would become available to you. If you need help understanding the comparison, HECM counselors can explain it to you.
