What's In This Article?
Reverse mortgages in Arizona are increasingly becoming a popular lending option for seniors, especially those who don’t have a job or prefer to stay at home. Remember, if you don’t have a regular job in Arizona, you may not qualify for a conventional loan.
Thus, reverse mortgages are the go-to option for many seniors facing financial constraints. In addition, you only need to be 62 old, and your partner can sign the disclaimer deed as a non-borrowing spouse if they don’t qualify for the age cap. Hence, you can do a reverse mortgage solely, provided you fulfill the age threshold, 62 years.
Besides the growing popularity of reverse mortgages in Arizona, do seniors understand the obligations that come with it? For example, do you know that a reverse mortgage taken without the knowledge of your loved ones could affect them when you move into an elderly care home or pass away? Briefly, it will help if you understand the long-term impacts that a reverse mortgage has on the people you leave behind, whether the borrowing terms promise to protect your spouse or not. This article highlights all the essential aspects you need to note about a reverse mortgage, the costs associated with it, and the pros/ cons. We also included the questions you should ask before opting for a reverse mortgage.
What is a Reverse Mortgage?
The reverse mortgage came into existence in 1961, thanks to Nelson Haynes, the pioneer. Generally, it is a mortgage loan that allows residential homeowners aged 62 and beyond to access the unencumbered value of their property equity without remitting monthly mortgage payments. In Arizona alone, about 14% of the population is 62 years old and above, hence eligible for a reverse mortgage. And since the advanced loan doesn’t have restrictions or limitations on how the borrower can spend it, reverse mortgages in Arizona attract many people.
The eligibility conditions are pretty much straightforward for many seniors. Besides attaining age 62, one must live in the property as their permanent residence and ensure that they are up to date with their taxes and insurance. Also, the owner must service and maintain the home as required. Most importantly, you can borrow the loan without involving third-party borrowers, provided you attain the minimum age threshold.
The Costs Associated with a Reverse Mortgage
Typically, the costs of reverse mortgages in Arizona vary among different borrowers and depend on the type of loan you opt for. However, these costs are usually more expensive than standard home loans. Besides the amount borrowed, including the interest and fees, reverse mortgage loans typically grow over time. The general costs associated with a reverse mortgage include:
1. Reverse Mortgage Counselling Fees
Most lenders will require reverse mortgage applicants to receive mandatory counseling from a government-certified agency. After completing the session, the counselor will issue a Reverse Mortgage Counselling Certificate valid for 180 days. The counselor will break down what taking a reverse mortgage means and how it will affect your future.
Remember, this is something you’ll likely live with throughout your golden years. The agency will also determine whether you can afford the loan, including your future income and debt obligations. The costs for these services vary with every agency. However, the Department of Housing and Urban Development (HUD) requires the counselor to charge a reasonable fee. Moreover, the counselor must explain all the charges before your first session.
2. Upfront Costs of Reverse Mortgages
The application process of a reverse mortgage is almost similar to standard mortgages. Thus, a borrower typically parts with several one-time upfront costs before receiving the loan. However, you can use part of your loan to pay for these costs. In that case, you won’t bring any money during closing. Some upfront costs to expect in reverse mortgages include:
• Origination Fees
The mortgage origination fee is the money you pay the lender to process a new loan application. Some lenders refer to it as a discount fee, especially if the amount equals 1% of the money borrowed. Even though the origination fee may vary in different circumstances, it cannot exceed $6,000. In most cases, lenders use this money to pay for funding and underwriting (includes processing the loan).
• Real Estate Closing Costs
The lender will use several real estate professionals to inspect and survey the property before the closing. All these services come at a fee, including the costs of an appraisal, title search, mortgage taxes, survey, inspection, and credit checks. Also, the lender will specify and other applicable real estate closing costs.
• An Initial Mortgage Insurance (Premium)
Your lender will charge you initial and annual premium insurance, usually remitted to the Federal Housing Administration. This premium insurance guarantees that the borrower will receive the expected loan advances as stipulated in the agreement. However, kindly note that you’ll still have to pay your homeowners insurance.
3. Ongoing Costs of Reverse Mortgages
The lender will add ongoing costs to the loan balance you owe every month. Thus, you’ll service new interest and fees on top of the previous month’s loan balance. Of course, if you have a smaller loan balance, the ongoing costs will be lower. That is why most reverse mortgage counselors will advise you to only apply for as much as you need. Some of the ongoing expenses of a reverse mortgage include:
- Annual mortgage insurance- usually 0.5% of the outstanding mortgage balance
- Property charges- paid in taxes and homeowners insurance
- Servicing fees- paid to the lender for account maintenance
The Pros of Reverse Mortgages in Arizona
Despite the various complaints from the public about reverse mortgages being a scam, these loans can be beneficial if you’re an ideal candidate. A perfect candidate is an elderly homeowner who doesn’t have much savings but requires cash infusion. Some of the pros of reverse mortgages in Arizona include:
• Better Expense Management in Retirement
As a successful borrower, you can stay in your home without remitting any monthly payments towards the reverse mortgage. This gives you peace of mind to manage other expenses because it is inevitable for most seniors to experience limited to zero income. With a reverse mortgage, you can comfortably pay for bills, including medical supplies or even gifts for your grandchildren.
• Tax-Free Income
The IRS will not tax income from your reverse mortgage as the money is a loan proceed. Moreover, the reverse mortgage interest rate is not deductible unless you decide to pay it, usually in full. Even so, the federal and state tax laws can sometimes be complex. Therefore, it will help if you seek professional tax advice before committing to the reverse mortgage.
• Protection if the Balance Exceeds the Fair Market Value
If you fail to service your reverse mortgage on time, the loan balance will grow and possibly exceed the fair market value of your property. However, the debt balance that you’ll eventually pay must never exceed the property’s fair market value. Thus, the lender will have no legal claim against any other asset but the property. Also, the assets of your heirs remain protected if this is the scenario.
• Your Loved Ones Have Options
Even though a borrower can pay for a reverse mortgage sooner, it typically ends if they die, move, sell the property, or pass away. When it comes to inheriting the estate, your heirs have various approaches to service the loan. For instance, the heirs can sell the home and retain any equity after paying the debt. The heirs can also keep the home and refinance the mortgage balance or give the title to the lender if the debt balance exceeds the property’s value. The lender will file a claim for unpaid balances with the property’s insurer in the latter situation.
The Cons of Reverse Mortgages in Arizona
Before deciding to take a reverse mortgage, it will help if you weigh the pros against its cons. As noted, these loans are open for everyone but may not be ideal for your situation. The cons are:
• You Must Pay for It
Ideally, a reverse mortgage is applicable for everyone, even if they can’t afford the ongoing costs. However, the lender will add these costs to the loan balance, including what you didn’t pay at the closing. Thus, you may end up with more debt and less equity in the long haul. But, again, you’ll eventually pay for these costs, even if it means giving the lender your property’s title.
• Your Home Could Face a Foreclosure
Sometimes, a foreclosure may seem nigh impossible since the lender doesn’t compel you to remit monthly payments for principal and interest. Well, not so. Provided the homeowner cannot pay property taxes, maintenance fee to the HOA, or homeowners insurance, foreclosure is inevitable.
• Reverse Mortgage Can Inadvertently Violate Other Program Requirements
Lastly, there are various programs for seniors, such as Medicaid and Supplemental Security Income (SSI). There is a high likelihood that a reverse mortgage loan will make you violate asset restrictions tied to this program. This can complicate your future by diminishing the quality of life in your golden years. Thus, you would want to talk to an expert attorney in elder law before committing to reverse mortgage loans.
The Questions You Should Be Asking Before Deciding on a Reverse Mortgage
You would want to inquire the following before committing to a reverse mortgage:
1. Is a Reverse Mortgage Good For Me?
It will help if you weigh all the pros against the cons of getting a reverse mortgage in your situation. For instance, if you plan to keep the property for a long time, it is justifiable to incur all the additional expenses of reverse mortgages in Arizona.
2. Can I Sell My Home Instead of Applying for a Reverse Mortgage?
Reasons that could push you to apply for a reverse mortgage include the expensive maintenance costs of your current property. On the other hand, if you can sacrifice the proceeds of a high-value property for a relatively affordable home, you may not even need the loan. However, this is a personal decision because needs vary.
3. Does a Reverse Mortgage Affect My Spouse?
In most cases, surviving spouses will feel the negative impacts of a reverse mortgage, especially after the borrower dies. The result is that even non-borrowing spouses can risk a foreclosure, especially if the deceased spouse took a non-HUD loan. Ensure you talk to your counselor to see the options that allow the surviving spouse to remain in the home even if the borrowing spouse dies.
Where to Get a Reverse Mortgage
You’ve probably seen their ads featuring Tom Selleck on TV and in print publications. AAG is the premier provider of reverse mortgages in the US. They specialize in the financial needs of older adults.
We highly recommend AAG and suggest that you visit them via the orange link below this review.
|😀 PROS||😡 CONS|
|Straightforward reverse mortgage options||Must be 62 years old to qualify|
|Financial assessments by qualified experts||No immediate quote available|
|Customized quotes||Interest rates may vary|
A reverse mortgage loan can come to your rescue and improve the quality of life in your golden years. However, don’t confuse reverse mortgages in Arizona for an easy and obvious solution. Getting the loan means converting your property’s equity into a recurring cash flow. Thus, go for it if you have financial resources to meet the expense obligations associated with reverse mortgages, such as insurance and property taxes.