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10 Things You Should Know About Reverse Mortgages

Understand the pros and cons before signing on the dotted line

Q: If I take out a reverse mortgage, does the bank own my home? 

A: No, the title remains with the borrower. When your home is sold, you or your estate will need to repay the lender any cash you received from the reverse mortgage, plus interest and other fees. Any remaining equity in the home belongs to you or your heirs.

Q: Do I still need to pay my property taxes and home insurance with a reverse mortgage?

A: Yes. Reverse mortgages are not like regular mortgages in which insurance and taxes are paid out of an escrow account, so you would have to pay those expenses. If for some reason your homeowner's insurance has lapsed, you will need to reinstate your policy. You also need to be current on any homeowner's association fees.

Q: When do I have to pay back a reverse mortgage? 

A: When you die, sell your home or permanently relocate. The loan also becomes due if you default on the loan by not paying your property taxes or homeowner's insurance, or if the property conditions deteriorate and necessary repairs are not made.

Q: Are reverse mortgages expensive?

A: There are substantial upfront fees (i.e., mortgage insurance premiums, loan origination fees and closing costs) with these loans, as well as ongoing fees (mortgage premiums, interest and servicing fees), during the course of the loan. Before you take out the loan, you have to consider how much you will pay in fees so you have enough to cover your expenses.

For example, the standard HECM loan charges a 2 percent mortgage insurance premium up front on the home value – not the amount borrowed – as with regular forward mortgages. For example, if you own a $400,000 home, the upfront MIP would be $8,000 – whether you borrow $30,000 or $200,000.

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