The Pros and Cons of Reverse Mortgage
By Margie Robinson
At that time, the estate has approximately 12 months to repay the balance of the reverse mortgage or sell the home to pay off the balance. All remaining equity is inherited by the estate. The estate is not liable if the home sells for less than the balance of the reverse mortgage.
A reverse mortgage, or lifetime mortgage as it is sometimes called, is a loan available to seniors, and is used to release the home equity in the property as one lump sum or multiple payments. The borrower agrees that the money will be repaid by means of relinquishing the home when the borrower dies or moves. It is designed for homeowners over 62 years of age. It gives them access to their home’s equity in cash payments. This cash frees up money that they may use for other important costs or to make needed home repairs.
In general, this type of mortgage converts home equity into cash in several different ways. They range from monthly payments, to an equity line, to one-time pay outs, or a combination. The amount you can borrow varies according to your age, the value of the home, current interest rates, and loan fees.
Some sources say that reverse mortgage is a good idea. They suggest that this mortgage can be a source of ready cash when it’s needed, similar to other investments. But, like anything that impacts your bottom line when your earning potential is limited, taking out a reverse mortgage isn’t for everyone. Candidates for these mortgages should consider both the pros and the cons before jumping in.
Pros
Allows the homeowner to stay in the home permanently.
Pays off existing mortgages on the home.
Simple to qualify for because credit score and income are not considered.
No monthly payments are due for as long as the homeowner lives in the home.
The homeowner receives payments on flexible terms:
Credit line for emergencies
Monthly income
Lump sum distribution
Any combination of the above
This mortgage can not get “upside down” so the heirs will never owe more than the home is worth.
Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
Proceeds are not taxable.
The interest rate is lower than traditional mortgages and home equity loans.
Cons
I t is believed that reverse mortgage lenders fail to give seniors the full story when it comes to cashing out home equity.
The fees on a reverse mortgage are the same as a traditional FHA mortgage but are higher than a conventional mortgage because of the insurance cost. The largest costs are: FHA mortgage insurance and Origination fee.
Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.
They don’t tell you that the front load is very high.
Front-loading refers to up front costs which are paid out of the home’s equity at closing. The interest rate varies according to the market. However, closing costs are significantly higher with reverse mortgages.
In addition, borrowers continue to be responsible for real estate taxes, conventional homeowners insurance, home repairs, and mortgage insurance.
The program is not well understood by most individuals. However, there is availability of independent reverse mortgage counseling. Before you get involved in a deal for reverse mortgage, make sure you know all the facts, and make sure that it is the best move for you.
Margie A. Robinson
Certified Identity Theft Risk Management Specialist (CITRMS)
Author of: “Are You YOU or Is Someone Else YOU – Protect Yourself From Identity Theft”
“Formula For Success – Success Can Be Yours Too”
Provide Workshops
(757) 480-9160
Lrobinson16@cox.net
http://www.margiewrobinson.com
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