Reverse mortgages are generally considered to be a safer option these days. Namely, this is because of the Reverse Mortgage Stabilization Act of 2013, which added more safeguards and put into place more restrictions for lenders. As a result, a number of lenders offer more lucrative terms and reduced upfront cost.
A reverse mortgage can be a good option for a retiring couple because it offers a number of payouts which include monthly payout options, a lump sum payout or a line of credit. As compared the HECMs, FHA-insured open-ended reverse mortgages, or HELOCs, where the borrower is required to repay the principal as well as interest, reverse mortgages trump them because this obligation is not mandated to the borrower. Further, a reverse mortgage is not based upon income or assets, with exception to the equity and the home being the primary asset that’s being borrowed against.
In the past, closing costs were a lot higher for reverse mortgages. But since this act has been written into law, lenders have become far more competitive. Many now offer very lenient closing costs that can be as low as $250. In addition, if one chooses the line of credit option, it can also be obtained and maintained with minimal, if any, closing costs.
The Reverse Mortgage Stabilization Act of 2013 also assured that homeowners were capable of paying their real estate taxes, homeowner insurance and upkeep as part of the approval process. What this did was assure that these loans were only being approved for persons who could meet the basic requirements. What is also helped do is protect the industry at large from rising defaults that could hamper future lending efforts.
Another benefit of this Act to homeowners as that it protected a “surviving spouse.” Previously, the surviving spouse had to repay the loan balance to remain in the home if their significant other passed away. But new provisions allow for the window (er) a 90-day window to defer the payable status of the loan to establish sole ownership and stay in the home.
A reverse mortgage can be a viable option for retiring couples who are feeling a bit a budget pinch. Before you consider taking one out, you’ll have to complete a mandated financial counseling session. Be sure to weigh the pros and cons of this available lending option with other options that may be available to you at the time, so you can make the best decision for your financial interest.