A lot has changed about reverse mortgages in recent years. A new set of reverse mortgage rules and laws have been put into effect that leave some homeowners confused (as if a mortgage wasn’t already a confusing stack of paperwork laden with terms that are confounding).
But the experts over at Forbes are trying to help us better understand just how these new rules play a role in whether or not you qualify for a reverse mortgage (Home Equity Conversion Mortgage). Be prepared to spend some time reading this, as it’s an in-depth, three-page read that you should dedicate a good 20 minutes of your time to.
Newer rules determine whether or not you are able to get a reverse mortgage. They accommodate existing rules, like the qualifying age of 62 or older, substantial available equity in your home, the home being used a primary residence, mandatory HECM counseling and so forth.
But the newer rules also say that you need show that you have the financial means to cover the home’s upkeep, pay the property taxes and retain the right amount of insurance. Yet another portion of the new rules dictates what amount you are able to finance, and some sections are unclear, like whether or not you can finance home upkeep and property taxes if you are financially insecure but need access to your equity.
The article also explains other aspects that may be overlooked, like how your principal limit grows over time and how its calculated. Things many people would probably wouldn’t think about.
“We need to understand how to calculate the initial principal limit when the reverse mortgage is opened, as well as how to understand the way that the principal limit grows over time,” wrote the article’s author, Wade Pfau of McLean Asset Management in McLean, Va., and The American College in Bryn Mawr, Pa. “The initial principal limit is calculated with the expected rate, while principal limit growth is calculated with the effective rate.”
If you do have the time, and if you are considering a reverse mortgage, it’s vital that you fully understand how these home loans work and what’s involved on your part. The Forbes article breaks down the hard to understand terms and fully explains them so that you can be better informed.
Of course, when considering a reverse mortgage, it is important that you also speak to your financial advisor to gain personalized, expert advice before making any decision that could affect your financial wellbeing.