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Why a Reverse Mortgage May Not Be Good for Your Situation
Why a Reverse Mortgage may not be Good for Your Situation
By Don Seibert
There is a lot of chatter, TV ads, and magazine articles out there that sell the concept of reverse mortgages being the salvation for the monthly budget of a senior citizen. That is not always true! Reverse mortgages are a great thing for many,[link widoczny dla zalogowanych], many retirees, but, depending on your particular financial situation, a reverse mortgage may really mess up your future financial plan and eat up all of your equity.
First of all, the up front costs associated with getting a reverse mortgage are far more than those associated with traditional mortgages. The requirement by FHA that you pay an origination fee of 2% and an insurance fee of 2% or the reverse mortgage amount is added to the loan costs that you would normally expect to see. With a reverse mortgage, you still have to pay for an appraisal,[link widoczny dla zalogowanych], maybe a survey, a title search,[link widoczny dla zalogowanych], credit search, attorney's fees,[link widoczny dla zalogowanych], express fees, etc that you are accustomed to. If you are not very certain that you will still be living in you home after five more years, it will be real difficult to 'spread the cost' or amortize those expenses over the life of the reverse mortgage and still come out ahead.
If you were to stand back and view a reverse mortgage in comparison to a traditional home equity line of credit, you will find very few differences. They are both based on the equity in your home, but their costs are dramatically different. With a reverse mortgage, you can get the proceeds (after the home is paid off) as a lump sum, a line of credit or in monthly payments for as long as you live in the home. If you are considering refinance to improve your monthly cash flow, then the reverse mortgage wins, hands down. In most cases, you cannot achive this with a home equity line of credit. But if you are considering a reverse mortgage to pay a large medical bill or to meet anothe unexpected obligation, the home equity line of credit may be far superior to the reverse mortgage option. In this case, you would acheive essentially the same benefits without the huge up front costs, and probably do so at a lower interest rate (APR).
Another consideration that few people speak about is how a reverse mortgage eats into the equity that you have paid into your home up until now and dramatically changes the amount remaining to leave to your heirs. For many, they are so concerned about making ends meet until they pass on that this is not a concern. You have to do what you have to do. They view this as a 'pay me now or pay me later' situation. If you can improve your cash flow from now until you pass, you will prevent your children from having to support you in your later years - at the expense of their inheritance. These are trade-offs that need to be considered before embarkingon a reverse mortgage.
Part of the whole idea of reverse mortgages is that the insurance provided by HUD on a reverse mortgage guaranteed that the monthly payment to you from the reverse mortgage will be continues to you even if the lender goes out of business or if you outlive the reverse mortgage term. For expample, let's say you are 65 years old and take out a reverse mortgage on your home and that pays you $400 per month and the term of the mortgage is 25 years (used for computing interest). With the actuarial life expectancy continuing to lengthen, it is not unreasonable that you may live to be 93 years old. The HUD insurance will provide for continuation of your monthly $400 check even after you outlived the mortgage end at age 90 - as long as you continue to live in the home! Of course, if you become disabled or need to move into assisted living or a nursing home, the reverse mortgage would necessarily have to be paid off.
Therefore, you general state of health and your expectations for your later years should play heavily into your decision on a reverse mortgage. These are just afe of the things to consider when evaluating a reverse mortgage. You will hear a whole lot of hype and people promoting reverse mortgages. This usually comes from people eho make their living from selling reverse mortgages and you have to take that into consideration. Just remember the Law of the Barbershop - "Don't ask the barber if you need a haircut - you will probably get clipped! "
Reverse mortgages can be a wonderful option for many senior citizens. Just make sure that a reverse mortgage is right for you before moving forward! Don Seibert is a retired business executive intimately familiar with real estate mortgages and the needs of senior citizens. His website is [link widoczny dla zalogowanych] retiree-finance. com and it has More Reverse Mortgage Information and many more free articles related to home refinance for Senior Citizens.Topics related articles：

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