Reverse mortgages have been continuing to grow in popularity, particularly with older homeowners. A reverse mortgage can be a viable and convenient way to use your home’s equity to pay off your mortgage, pay for unexpected medical expenses or simply to supplement retirement income.
As with any home lending option, there are pros and cons to consider. Reverse mortgages are complex transactions which require thorough understanding.
Reverse Mortgage Advantages
While similar to a home equity loan or home equity line of credit, a reverse mortgage has some very important differences. Rather than receiving a single lump sum, reverse mortgages pay your monthly income based on the amount of equity built into your home. The reverse mortgage payments you receive from your Milwaukee mortgage lender are tax-free and will not affect your government benefits like Social Security or Medicare.
Unlike a home equity loan or line of credit, you are not obligated to immediately pay back any portion of your reverse mortgage until the last surviving borrower dies, sells the home or moves out.
Federally-backed reverse mortgages, called Home Equity Conversion Mortgages or HECMs, provide a 12-month window to pay back the loan when the last living borrower moves into a nursing home or medical facility.
While interest will accrue on the unpaid portion of your reverse mortgage, many reverse mortgage options feature a nonrecourse clause, meaning your estate will never owe more than the equity value of your home when the loan comes due.
Your home’s title remains in your name and under your control through the duration of your Wisconsin reverse mortgage.
Reverse Mortgages and What to Consider
Unlike a traditional loan where you gradually pay back principal with interest until your balance reaches $0, in a reverse mortgage the amount you owe will continue to grow by the difference between the amount you receive and what you choose to pay back each month, plus interest.
When your loan comes due, you (or your estate) will owe the full accrued balance.
If your reverse mortgage features a nonrecourse clause, the owed balance will never exceed the value of your home when it is sold. However, if you or your heirs wish to keep the home, the full balance will need to be paid even if it exceeds your home’s equity value.
Failure to maintain your home’s upkeep, homeowner’s insurance, or stay current on your property taxes may cause your reverse mortgage to come due and become immediately payable or default.
While your reverse mortgage income is completely non-taxable, the flip side is the interest accrued will not become tax deductible until your loan is paid in part or in whole.
Home Loan Terms and APR for a Reverse Mortgages Varies
Not all reverse mortgages feature the same disbursement and repayment terms or interest rates. While typical reverse mortgages consist of a fixed monthly cash advance for a predetermined length of time, a tenure reverse mortgage can provide monthly income for as long as you own your home.
Some reverse mortgages provide a “line of credit” option, where borrowers are given a fixed cap from which they can draw at any time. While similar in concept to a Wisconsin home equity line of credit, a reverse mortgage line of credit will not come due until the last surviving borrower is no longer living in the home.
Occasionally, Wisconsin reverse mortgage lenders will offer a combination of these loan types.
Mortgage lenders must also consider fixed or variable rate APR options. Variable rate APR loans will offer lower initial interest rates (the interest rate is subject to change in accordance to the prime rate). Fixed rate APR home loans in Wisconsin may have higher initial interest costs, but may be a better option when Wisconsin home interest rates are poised for increase.
The best way to get your reverse mortgage questions answered is by talking to one of our experienced and highly knowledgeable home lending experts. We know reverse mortgages are complex transactions and it is important to have a full understanding before entering into any financial agreement, which is why we help you figure out which mortgage solution is best for your specific situation.