What if I change my mind and no longer want the loan after closing?
Under federal law, the right of rescission gives you three calendar days to change your mind and cancel your loan. Your reverse mortgage lender should explain their loan cancellation process at closing, but be sure to ask for written instructions, as well as the names of the appropriate people, their telephone and fax numbers, and addresses. In most HECM for Purchase Program transactions, however, the right of rescission will not be applicable.
Why do I need to get counseling before applying for a reverse mortgage?
The federal government requires that all homeowners receive counseling before applying for a reverse mortgage. The value of counseling is that you will be equipped with the knowledge needed to make informed choices and not get talked into a loan you do not need or want. HUD-approved counselors are trained to provide unbiased information about reverse mortgages, explain their costs and features, evaluate their pros and cons, and clarify not only their short-term benefits, but also their long-term responsibilities. Your counselor will also discuss alternative options unique to your situation such as private and public benefits that can help you stay independent longer.
No, the tax-free proceeds from a reverse mortgage can be used for virtually anything you choose. Homeowners can pay off current liens on their property, pay property tax and insurance expenses, access cash for paying bills, provide monthly cash flow, and/or replenish cash reserves. Your reverse mortgage proceeds can even be used to purchase a new home. These are just a few of the many options available.
With a home equity line of credit, or a second mortgage, homeowners are required to make monthly payments on the principal and interest. A reverse mortgage is different because there are no monthly principal and interest payment requirements. And as long as the home is maintained as a primary residence and the homeowners stay current on insurance and tax payments, they are not required to pay back the loan until the home is sold or otherwise vacated.
What is the difference between a reverse mortgage and a home equity loan?
Reverse mortgages themselves are not scams, but senior homeowners can sometimes be targeted by unscrupulous companies and individuals offering too-good-to-be-true investment or real estate deals. Sadly, there are also cases where parents are talked into a reverse mortgage by family members that just want to get their hands on the cash. Federal law prohibits anyone from requiring you to purchase a financial product such as life insurance or long-term care insurance in order to get a reverse mortgage. The FBI and U.S. Department of Housing and Urban Development (HUD) urge vigilance when looking at reverse mortgage programs, and consulting with a lender that has many years of experience working with reverse mortgages is recommended.
Aren't reverse mortgages just scams?
Frequently Asked Questions
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Are there limits to how reverse mortgage proceeds can be utilized?
It is never a good idea to make a financial decision under stress, and waiting until a small issue becomes a big problem reduces your options. If you wait until you are in a financial crisis, a little extra income each month probably will not help. Also, if you do not immediately need the cash, or if the cash is needed only for a short period of time and can be funded by other means such as CDs or savings accounts, then a reverse mortgage is not a good fit. Reverse mortgages work best when they are considered as part of a sound financial plan, rather than as a means of getting quick cash or managing a financial crisis.
When is a reverse mortgage a bad idea?
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