Can’t Pay Your Property Taxes or Homeowner’s Insurance?
When you take out a reverse mortgage, you no longer have to make mortgage payments to your lender. Instead, your lender gives you money, either in monthly payments or a lump sum, a line of credit or a combination of all three ways. While this mortgage program is certainly beneficial for many reasons, many homeowners don’t realize that in order to keep their reverse mortgage from going into default, they have to continue to pay their homeowners insurance premiums and property taxes.
If a homeowner is unable to make these payments, the reverse mortgage loan could be called due and potentially go into default resulting in foreclosure. To avoid this situation, homeowners should seriously consider whether or not they would be able to continue to afford to pay their property taxes and insurance before they agree to a reverse mortgage. If you already have a reverse mortgage and you’ve found yourself in this situation, don’t panic. No one wants to foreclose on your home. Foreclosure really doesn’t do anyone any good – not the banks, not you and not the government.
If you are in what is known as “arrears”, or owing money due to unpaid taxes and insurance, you will receive a letter from your mortgage servicer informing you that you have 30 days to begin a process to rectify your default. In the letter, you should see a list of mortgage or homeownership counselors with their contact information. The letter may also include a suggested repayment plan of up to 24 months. It is usually in your best interest to follow the repayment plan and reach out to one of the counselors on the list. He or she can help advise you on how to get out of arrears as well as the next steps to take once you’ve accomplished that task.
The Department of Housing and Urban Development (HUD) has trained counselors throughout the U.S. to help borrowers facing the threat of foreclosure. When you work with one of these trained counselors, he or she will go over your monthly income and expenses to see if there is a reasonable timeframe in which you can catch up on your financial obligations. The counselor can also search for any possible grant money for which you may be eligible.
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If you happen to have any equity remaining in your home, your counselor may recommend that you refinance into a new Home Equity Conversion Mortgage (HECM or Reverse Mortgage) and use part of the proceeds from the new loan to pay off the expenses from the old one.
Because everyone’s situation is likely to be different, there is no one right answer for all homeowners. That’s why working with a counselor is so helpful. The personalized attention and customized repayment plan will be created with your specific financial abilities factored in.
Remember, the most important thing is that you act as quickly as possible if you should find yourself in arrears. Do not wait until the debt builds and builds and finally reaches a point where foreclosure is the only option.