Have you recently been contacted about taking out a reverse mortgage on your home? Unfortunately, with the 4% excise tax and high property values in Hawaii, it can be a financial struggle for seniors without a regular income following retirement. Before you make any decisions, do as much research as you can. It is important to first answer the fundamental question: What is a reverse mortgage?
A reverse mortgage is a loan that allows homeowners over the age of 62-years-old to convert a portion of their home equity into tax-free cash without having to sell, relinquish ownership, or make monthly payments. The older a borrower is, the higher the loan amount may possibly be. There is no maturity date for the reverse mortgage loan. This means there are only three circumstances in which a loan repayment is due; the first, is if the home is sold, the second, if the owner passes away, and the third, if the borrower is not keeping up their obligations to the lender. Obligations include keeping up with insurance, taxes, property upkeep, and living in the home as a primary residence. If you are unable to keep up with the obligations, you could end up losing your home to foreclosure. However, a reverse mortgage can be the correct decision to increase a retiree’s financial flexibility.
Often, parents have plans to pass their home down to a child. If that is the case, it is best to not take a reverse mortgage. Many lenders may assure you that the home will be saved, but in the case of a reverse mortgage, the home is usually sold to pay off the reverse mortgage, thus, eliminating the ability to pass it down. Additionally, there are higher costs associated with reverse-mortgage loans. The fees may include loan servicing fees, closing costs, insurance premiums, etc.
Reverse mortgages have a bad reputation, but can be a good financial move if enough research is dedicated to understanding the process. To decide if a reverse mortgage is right for you, ask yourself a few questions. Do you plan to leave the home to anyone? Do you have long-term plans for the home? Will you be able to pay off the loan by selling the house? Is this the correct option for your situation, or would a home-equity loan work better for you? Reverse-mortgage eligibility requires the borrower to be 62 years or older, for the home to be the primary residence, that there are no delinquent federal debts, that the home is owned outright or has a considerable amount of equity, that the home meets FHA property standards, and that all home insurance and property taxes are still being paid regularly.
If you are still considering a reverse mortgage, make sure you understand the benefits and facts. The first benefit is you will not need to make monthly payments towards the loan, as stated above. The second benefit is you remain the owner of the home and property. Thirdly, you can use the loan however you please. Should you need the money to purchase a new car, pay for long-term care or take that dream retirement vacation, it is up to you. Unfortunately, we are all aware of the high cost of living in beautiful Hawaii. A reverse mortgage could be just the thing for you if you are struggling financially or just want some extra money. Additionally, there is no payment penalty for heirs, meaning heirs are not responsible for paying off a reverse-mortgage loan. Just note, the house will not be able to be passed down to them. Lastly, a borrower will never owe more than the value of their home.
If you have recently retired to Hawaii or have lived in Hawaii for years and are retiring, it is great to understand how a reverse mortgage can benefit you. If you decide to take a reverse mortgage, you can choose to receive the funds as a single lump sum, as a monthly payment, as an equity line of credit, or as a combination. However, if you have a fixed-rate mortgage, you will get a lump-sum. Should you decide to go through with a reverse mortgage loan, you will be required to attend a counseling session with the FHA-approved reverse mortgage counselor. This session will help you understand the process fully before you decide.
The best way to think of a reverse mortgage is as the reverse of a traditional loan. Instead of the borrower making monthly payments, the lender pays the borrower. Hawaii is the perfect retirement location. It offers island life, the spirit of Aloha, and friendly people. Do not let financial strain keep you from living life. A reverse mortgage could be the perfect move towards financial flexibility. However, it requires extensive research to decide if it is a financially responsible decision for your personal situation.
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