Home Mortgage Refinancing Options: Automatic Refinance Mortgages (Reverse Rate Mortgages)

Home Mortgage Refinancing: Understanding the Reverse Mortgage

Reverse mortgages can be a way for older Americans to have an additional monthly income—however, there are many cautions involved, including predatory lenders and scam artists. Only those 62 years of age and older are eligible for this loan, and for the most part you won’t have to pay it back unless you sell the home or die. While this may be a good deal for some, it can end up a heartache for others.

Home Mortgage Refinancing: How the Reverse Mortgage Works for You

This loan is one that is paid to you. Most people either receive the whole payment at once or get a regular monthly cash payment. However, you can also use it as a line of credit, where you make the decisions how you get the cash and when—this can be good for investors or for those who have sporadic income from other sources. You may also receive your cash in a combination of these ways.

Home Mortgage Refinancing: The Benefits of the Reverse Mortgage

One of the great things about this loan is that you will not lose your house for not making payments. You need no qualifying income, and there aren’t any payments for you. This loan is good for as long as you live in the home. In some ways it’s like a home equity line of credit where you don’t have to pay back the loan.

Home Mortgage Refinancing: The Downside to a Reverse Mortgage

However, remember that with the reverse mortgage you are increasing your debt and generally losing equity unless your home goes up in value markedly. This situation is not right for everyone. Remember that you will have application fees and closing costs to pay, and it’s easy to be overcharged for these. Also, if you are using the money for home improvements, you may fare better with single-purpose loans—check and compare these loans with the reverse mortgage before signing anything.

Home Mortgage Refinancing: Understanding Reverse Mortgage Conditions

There are also conditions under which the loan would be due and payable in full. Make sure you read your documents carefully, and have your attorney look over your paperwork. Get your loan representative to explain it to you as well, and have her explain your Total Annual Loan Cost—don’t miss this important step. It will give you all your annual costs to maintain this loan. Don’t forget that the loan is a product your mortgage company sells, and a reverse mortgage is no different. Find out how much of a chunk of your income they intend to charge you before considering this loan. If you’re in doubt or don’t understand the reverse mortgage by the time they have explained it all, consider other options.

Don't Be Pressued

However, don’t let someone try to “talk you into” a reverse mortgage for any reason, especially to pay for something they are trying to sell you. Get slick salespeople off the phone or away from your door—chances are excellent that they are going to make some good money from your possible demise. If you want to consider a reverse mortgage, consult a reputable lender, and make sure you read all the government literature on reverse mortgages.