Are you among the many people who refinanced your mortgage when the economy tanked? Make sure that you keep up with the payments on your homeowners insurance, as well as your property taxes. Failing to pay those bills can lead to all sorts of easily avoidable problems.
It might be called a “refinanced mortgage”, or a “reverse mortgage”, or a “home equity conversion mortgage” (HECM). No matter what name you choose, it basically means the same thing. It indicates that you had a mortgage on your home at some point in the past, and then, later, you took out a special type of home loan that allowed you to convert a portion of the equity of your home into cash.
People often did this in order to be able to pay other bills, or to have some money to live on after becoming unemployed. Doing this is not the “easy way out” of a mortgage that you cannot pay off, and there are many qualifications you must meet before you will be allowed to refinance. One should always very carefully consider the decision to refinance your home and weigh out the pros and cons.
Keep in mind that refinancing your mortgage does not automatically absolve you from having to pay your other bills. The property your home sits is still going to be taxed, and so, you must still pay your property taxes.
Your original mortgage may have come with an escrow account. Those can be helpful because a certain amount of the money you pay to the mortgage company goes into the escrow account. That money then automatically gets used to pay both your property taxes and your homeowners insurance. You don’t really have to think about it.
However, a reverse mortgage doesn’t come with one of these helpful escrow accounts. This means that you are on your own when it comes to remembering to pay your property taxes and homeowners insurance. It is up to you to come up with the money to pay those bills, as well.
Homeowners insurance is designed to give you some financial protection in case damages are done to your home. This can include the structure itself, the garage, the appliances, the plumbing, and all of your possessions that are located inside your home.
If you let this lapse, then you lose this coverage. That means if a storm causes a tree to fall onto your roof, or if someone breaks in and steals your valuables, you won’t have insurance protection to help you deal with those issues.
It is also very important that you continue to pay off the loan that you took out against your mortgage. Failure to do so could actually put you at risk of having your home go into foreclosure.
Image by Garreth Wilcock on Flickr