CNET, an online publication normally associated with providing technology news and reviews of consumer electronics, turned its attention to serving as a “guide to a better future” and explored home equity tapping in a personal finance column this week. One such equity-tapping option it explored was a reverse mortgage.
“If your home has been appreciating in value and you’ve been making your mortgage payments consistently, and on time, you’re probably sitting on a decent amount of equity,” the column reads. “Whether you’re thinking about tapping into that equity to help pay for a big home improvement project, supplementing your retirement income or cover other major expenses, there are a few different ways to borrow against the equity you’ve accumulated.”
To that end, the column chose to explore the similarities and differences between equity tapping options including Home Equity Lines of Credit (HELOCs), home equity loans and reverse mortgages.
“Appropriately named, a reverse mortgage operates in the reverse direction of a traditional mortgage,” the column says. “Instead of making payments each month to pay down your principal, you’ll receive a check each month (there are also options to borrow in one lump sum), and you won’t have to make payments until you sell the home or you die.”
The introduction to reverse mortgages also aims to illustrate how different use cases can be used by different people.
“This isn’t for everyone, though,” it says. “You need to be at least 62 years old to apply for a reverse mortgage. There are also different varieties of reverse mortgages — single-purpose, which restrict the way you can use the money; Home Equity Conversion Mortgages, or HECMs, which are insured by the federal government, and proprietary reverse mortgages, which can have higher limits than government-backed loans.”
The potential “pros and cons” are listed, with the lack of an immediate payment requirement; multiple disbursement options; and non-borrowing spouse protections listed in the “pros” column. In terms of cons, the column lists the addition of new debt; high closing costs, origination fee and a mortgage insurance premium; the predilection of scammers who target the elderly to represent themselves using the product; and the potential to lose the home if property taxes or homeowners insurance is not paid.
“If you’re an older homeowner with a lot of equity — at least 50% — in your home, a reverse mortgage can be a smart pathway to accessing cash,” the column reads. “These can come with serious consequences, though, for your spouse or what you pass along to your heirs, so it’s important to do your research. You’ll have to complete a homeownership counseling course if you take out an HECM (a reverse mortgage backed by the U.S. Department of Housing and Urban Development), which can help answer your questions.”
Read the column at CNET.
