Mr. Cooper Mortgage Review 2024: Online Mortgage Options With Opportunities To Save (2024)

Vault’s Viewpoint on Reverse Mortgages

• A reverse mortgage can offer you a loan of more than 1 million dollars, which isn’t required to be repaid until you die or move out.
• You and your home must meet the requirements to receive a reverse mortgage.
• You’re responsible for your home’s maintenance, taxes, insurance and fees, and if you don’t cover these expenses, you could lose your home.

Reverse Mortgage Pros

Reverse mortgage benefits include a potentially very high limit you can borrow up to and generally no income requirements for approval. Various reverse mortgage cash flow methods include consistent monthly payments, a lump sum or a line of credit you can draw from.

Potentially High Borrowing Limit

In 2024, the maximum amount for federally backed reverse mortgages is $1.1 million. Your borrowing limit is how much you can borrow using your home’s equity. If you and your spouse are both older, your home is of higher value and interest rates are low, you could access a higher borrowing limit, also called a principal limit.

Access to Cash Flow

A reverse mortgage allows you to draw from your home’s equity without selling your home and moving. You can also use the money to pay off your current mortgage, thereby reducing your monthly expenses and freeing up cash flow.

Depending on how you structure payments, you could receive money via a lump sum, monthly payout or line of credit, which you can tap when necessary. However, remember that the balance owed grows every month you receive payments or draw on the funds.

Use Funds As You Wish

Home Equity Conversion Mortgages (HECMs) are the most common type of reverse mortgage and allow you to use the money you receive as you wish, as long as you keep up the home’s maintenance, insurance and taxes.

You can replace lost income, pay for medical expenses or go on a vacation. If you wait for a reverse mortgage, your home’s equity could provide significant cash flow, particularly if you can no longer work or your retirement savings are running out.

No Income Requirements

Most reverse mortgages don’t have the income requirements common in HELOCs and other home equity loans. Therefore, you may not even need to furnish information or evidence of your income. If you’re no longer working or only working part-time in retirement, this could ensure ease of qualifying for the loan.

A HUD-approved housing counselor will review your situation to assess your housing and financial needs and affordability. Factors will include your income, expenses, credit use and spending habits. This will help you decide whether a reverse mortgage is beneficial long-term.

Reverse Mortgage Cons

Reverse mortgage drawbacks should seriously be considered, as your home’s equity isn’t a source of free money—as some might expect. It’s not a government aid program, nor is the lender part of a government agency. Homeowners often don’t understand that their equity declines as they pull from the reverse mortgage. Many people lose their homes after falling behind on taxes, fees and insurance payments.

Here are more about these disadvantages and a few that apply only in some circ*mstances.

You Could Lose Your Home

Unfortunately, according to a 2023 National Consumer Law Center report, “…reverse mortgages end in foreclosure much more often than they should.”

The organization found that defaults can result from unpaid taxes, insurance and other costs. However, defaults can also result from poor communication between loan servicers and borrowers and a lack of access to loan counseling.

If the bank begins taking steps to foreclose on your home, it will start by sending you mail on a notice of default. After receiving a notice that the loan is “due and payable,” you can sell or allow the bank to foreclose. If you sell, you can do so for 95% of the home’s appraised value. Your mortgage insurance pays the difference between 95% and the HECM amount due.

You Must Repay the Loan

You or your heirs pay off a HECM when you or your spouse die, move out or no longer live in the home. The loan is typically repaid with the proceeds from selling the house. If your heirs want to keep the family home, they’ll have to pay off the reverse mortgage balance in full using other money.

Sometimes, you may pay back less than you owe on the loan. Specifically, if your home appraises for less than your reverse mortgage balance or your reverse mortgage is in default.

You Must Meet Borrower Requirements

To get a reverse mortgage, you must qualify in various ways. You must be 62 or older and can’t owe any federal debt (such as a student loan or back tax payments).

The home must be your primary residence—meaning you live there most of the time. It must also remain your primary residence, which could limit your mobility in older age. Your home also needs to be in acceptable shape regarding maintenance, or you might need to make repairs to get the loan.

In addition, it’s preferable if you own your home outright. It’s acceptable to owe some money on your mortgage, but the balance must be low enough to get paid off when your new reverse mortgage closes.

Reverse Mortgages May Feature Restrictions

Some special reverse mortgages, called “single-purpose reverse mortgages,” require you to use funds only in specific, required ways. Nonprofits or state agencies usually offer these reverse mortgages, which can only be used for specific purposes such as home repairs, improvements, energy efficiency or back taxes.

Putting It Together: Reverse Mortgage Advantages and Drawbacks

A reverse mortgage can be a good fit for you (and a co-borrower) if you’re both in your 70s or older, have built up significant home equity and plan to stay in your home for a long time. That said, a reverse mortgage isn’t right for everyone, even if you qualify or it sounds good initially.

Review your financial situation to ensure you can juggle ongoing bills and house-related required payments. Ask questions, shop around with various reverse mortgage providers and meet with a HUD-approved housing counselor, your own financial advisor or a real estate attorney.

You should be aware that multiple reverse mortgage providers have been investigated for deception and fraud by the HUD’s Office of Inspector General (OIG). Scams have targeted older Americans as reverse mortgages can be complicated to understand, apply for and manage.

According to a 2022 OIG bulletin, common scams include:

• Foreclosure scams
• Pressuring you to buy a second home with the reverse mortgage proceeds
• Reverse mortgage refinancing leads to large fees
• Contractor fraud
• Fraud committed by a financial professional or family
• Deceptive claims and estimates

In addition, some reverse mortgage lenders, brokers and servicers are involved in class-action lawsuits and government agency actions due to servicing fees, lack of communication, deceptive advertising and other issues.

As an alternative, consider whether you might be happier selling your home and taking the proceeds to downsize into a smaller, more manageable condo or house. While you may pay homeowners dues with many condos or townhomes, you’ll likely benefit from lower property tax and insurance bills due to lower square footage.

You can also research refinancing into a lower-interest home loan to pay off your current mortgage, particularly if you’re younger or still working.