How To Buy Out A Reverse Mortgage
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Take the time to weigh your options when deciding how to get out of a reverse mortgage. Each option is tailored to the particular circumstances for changing course or to how far along you might be in your agreement.
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For many senior homeowners interested in accessing their home equity, the reverse mortgage loan is a choice that is often made with confidence. After all, this financial product gives them the chance to convert a portion of their home equity into cash to supplement their retirement income. For a decision as important as a home equity loan, borrowers take the time to do their research about the product, speak with their reverse mortgage professional about their concerns, and review their finances to be sure that this loan is right for them.
If a borrower chooses to change their mind about a reverse mortgage, they only have to alert their lender in writing within the allowable three business days from signing. The lender must then cancel all loan documents and return all fees, closing costs, and unused funds paid by the consumer within 20 days.
It is not common for borrowers to use their right of rescission. In addition to the government-mandated reverse mortgage counseling session every borrower attends, American Advisors Group reverse mortgage professionals do everything they can to inform interested seniors on both the pros and the cons of reverse mortgages, in order to ensure that consumers are making an educated decision. The government-insured and regulated Home Equity Conversion Mortgage (HECM) reverse mortgage itself has developed into a safe mortgage loan for seniors, so they can enter into this loan with confidence. Even though consumers are well-protected when choosing a reverse mortgage loan, the 3-day right of rescission is available; a safeguard that helps give borrowers additional peace of mind.
Keep in mind, however, that this information on how to get out of a reverse mortgage does not apply to all reverse mortgage transactions, as it is only limited to properties that are already owner-occupied. Thus, the HECM for Purchase, which is the reverse mortgage version that allows you to both buy a new home and obtain a reverse mortgage in one transaction, is not eligible for rescission. Once closing documents are signed and funds have been sent, the decision is final.
So then, how do you get out of a reverse mortgage if you have a HECM for Purchase or you have already passed the 3-day rescission period on a normal reverse mortgage loan The best way of getting out of a reverse mortgage is by repaying the loan balance in full. If you have a large balance that you are unable to pay in cash, the most common solution is to sell the home and use the proceeds to pay off the reverse mortgage. Another option is to refinance the loan into a conventional mortgage.
Moving forward with any home equity loan is no small decision. And although it is uncommon for reverse mortgage borrowers to utilize their right of rescission, it is normal for borrowers to feel some anxiety when moving through the process. Fortunately, all of the reverse mortgage information you need to put your mind at ease is freely available for you to take advantage of in a number of ways. You can properly educate yourself by requesting free information online, attending a reverse mortgage counseling session, conducting your own research on the reverse mortgage facts, as well as speaking honestly with a licensed reverse mortgage professional about your questions and concerns. Armed with this knowledge, by loan closing you will feel confident whether you are making the right choice for your financial future.
Read more about how do reverse mortgages work, reverse mortgage interest rates, reverse mortgage loan trends, and reverse mortgage closing costs. Also, click here to use the reverse mortgage calculator.
[Note: There are several kinds of reverse mortgages available. The information in this article relates specifically to Home Equity Conversion Mortgages (HECMs), which are backed by the U.S. Department of Housing and Urban Development (HUD). The information may not apply to other types of reverse mortgages.]
Reverse mortgages differ from traditional mortgages in several ways. One major difference is that there is no obligation to make monthly payments on the loan. Reverse mortgages generally do not have to be repaid until the last surviving borrower dies, sells the home, or no longer lives in the home as a principal residence. Because of this, the amount owed on the mortgage increases over time as interest is charged on the outstanding balance each month.
Because of financial realities and market conditions, borrowers may believe that their only option for dealing with a reverse mortgage that has become due is to walk away from the obligation. Some people, however, are uncomfortable with the uncertainty that goes along with this decision and would prefer an option that allows them to feel that the matter has been addressed and is closed. For those people, it is reasonable to try to work with the lender to enter into a deed in lieu of foreclosure. The lender will require specific documents and will conduct an inspection of the property to determine if it meets their requirements for accepting a deed in lieu of foreclosure. Although the paperwork and process may take some time, the inconvenience is often well worth the psychological reward of knowing that the situation has been dealt with and the lender now holds title to the property in question.
If you are faced with a reverse mortgage that has become due and payable because of some triggering event, you can enter into negotiations directly with your borrower to try to deed the property to the lender in lieu of the foreclosure process. If you want help with this process or have questions about entering into a deed in lieu with your lender, please feel free to contact our office for assistance.
Think of a reverse mortgage as a conventional mortgage where the roles are switched. In a conventional mortgage, a person takes out a loan in order to buy a home and then repays the lender over time. In a reverse mortgage, the person already owns the home, and they borrow against it, getting a loan from a lender that they may not necessarily ever repay.
Most reverse mortgages are issued through government-insured programs that have strict rules and lending standards. There are also private, or proprietary, reverse mortgages, which are issued by private non-bank lenders, but those are less regulated and have an increased likelihood of being scams.
After a lender funds a reverse mortgage, borrowers use the money as provided for in their loan agreement. Some loans have restrictions on how the funds can be used (such as for improvements or renovations), while others are unrestricted. These loans last until the borrower dies or moves, at which time they (or their heirs) can repay the loan, or the property can be sold to repay the lender. The borrower gets any money that remains after the loan is repaid.
Single-purpose loans are typically the least expensive type of reverse mortgage. These loans are provided by nonprofits and state and local governments for particular purposes, which are dictated by the lender. Loans may be provided for things like repairs or improvements. However, loans are only available in certain areas.
Home equity conversion mortgages (HECMs) are backed by the U.S. Department of Housing and Urban Development and can be more expensive than conventional mortgages. However, loan funds can be used for just about anything. Borrowers can choose to get their money in several different ways, including a lump sum, fixed monthly payments, a line of credit or a combination of regular payments and line of credit.
Most people who take out reverse mortgages do not intend to ever repay them in full. In fact, if you think you may plan to repay your loan in full, then you may be better off avoiding reverse mortgages altogether.
However, generally speaking, reverse mortgages must be repaid when the borrower dies, moves, or sells their home. At that time, the borrowers (or their heirs) can either repay the loan and keep the property or sell the home and use the proceeds to repay the loan, with the sellers keeping any proceeds that remain after the loan is repaid.
In many cases, these scams get unwitting homeowners to take out reverse mortgages and give the money to the scammer. In other cases, scams try to force homeowners to take out reverse mortgages at onerous interest rates or with hidden terms that can cause the borrower to lose their property.
You need not assume by this post that I have anything against you using a reverse mortgage or that I think they are a bad product and those who sell them should get some cement shoes. If you truly understand how a reverse mortgage works and still want to use one, I don't have a problem with that. But one of the best ways to understand something is to see the problems with it. Then you can decide if those issues are a big deal to you or not.
Sure, that might not be a very good rate of return in comparison to the expected long-term return on riskier investments, but it certainly isn't zero. It's probably better than the guaranteed return on many low-risk investments. In addition, the paid-off home eliminates a risk in your life- the risk of the home being foreclosed on if, for some reason, you can no longer pay the mortgage. That risk might not be very high, but it isn't zero. Bottom line: Home equity isn't doing nothing. 59ce067264
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