Yesterday, the Secretary of the US Department of Housing and Urban Development (HUD) announced a new policy designed to help reverse mortgage borrowers who are behind on their real estate taxes.
With a conventional mortgage, your monthly mortgage payment typically includes an amount which the lender escrows and uses to pay your quarterly property taxes and sometimes even your homeowners insurance. With a reverse mortgage, you are responsible to pay these expenses on your own. If you are living on a fixed income and your savings are dwindling, you might turn to the reverse mortgage as a line of credit to provide you with the extra cash you need every month to cover all the costs of remaining in your home. You can have a fixed monthly amount wired into your account or you can write checks off of the credit line. See generally http://search.usa.gov/search?affiliate=housingandurbandevelopment&query=reverse+mortgages
Making sure the real estate taxes are paid on time is critical, as the loan can go into default if the lender learns that real estate taxes are unpaid. This leads to a foreclosure action and can result in loss of your home. Generally, borrowers could not draw a payment from the line of credit directly to the taxing authority to pay the real estate taxes. http://www.consumerfinance.gov/askcfpb/1511/ With the new HUD policy, they will be able to do so.
Nevertheless it is still critical that if you are planning to rely on your home equity through a reverse mortgage to fund your later years of retirement, that you make sure you could still afford the costs of your home if the mortgage equity is used up. Homes aren’t appreciating the way they used to, so refinancing the reverse mortgage loan to borrow more equity is often not a viable option the way it was in the 90’s or early 2000’s. Careful planning can avoid a crisis.
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