Category: mortgage

If you are considering getting a reverse mortgage, be sure you understand all the pros and cons to such a move. While the folks who sell reverse mortgages are very quick to tell you all the good things about a reverse mortgage, there are also disadvantages to getting a reverse mortgage and those are often harder to learn about and understand.

First, The Pros What’s Good About A Reverse Mortgage?

A reverse mortgage has some benefits for a homeowner in a specific niche. Others may also benefit, but a certain segment of the country will receive the greatest value from a reverse mortgage. Basically, if you get a reverse mortgage you continue to live in your home, and the lender pays you money out of your equity. A reverse mortgage pays off any existing mortgages on the home, and you can now live off your home, instead of making house payments, your house pays you! For as long as you live in the house, you will not have any payments to pay.

There are several ways a reverse mortgage can work. Your lender can extend a line of credit that you can tap into whenever you need to, or you can have lump sum amount of cash given to you, or you can receive regular monthly payments, as supplemental income. This money is tax-free.

Are There Cons? Reverse Mortgage Disadvantages

A reverse mortgage isn’t the perfect solution for everyone though your lender might want you to believe otherwise. Actually, reverse mortgages have several disadvantages. First, though your heirs won’t have to pay money to the bank upon your death (a reverse mortgage can’t get upside down ), a reverse mortgage is also using money that they probably thought they would inherit. Instead, they will only get whatever money is left over of your equity after paying off the reverse mortgage.

There are high closing costs to a reverse mortgage. This disadvantage is one that many people don’t realize until they are signing the official, notarized, paperwork, with everyone pressuring them to sign. The cost of closing this type of loan is about the same as if you were to sell your home. There is an origination fee charged by the lender and the cost of FHA mortgage insurance.

Another disadvantage to a reverse mortgage can be the consequences to taking too much money out in one month. For some other financial assistance from the government, like Medicaid, your income each month affects your eligibility.

A further reverse mortgage disadvantage is that you must first get independent HUD reverse mortgage counseling, since the whole issue of a reverse mortgage is not well understood by the bulk of Americans.

The need to keep careful track of the amount of money used from the reverse mortgage can be a disadvantage to many. It is important to know how close the homeowner is to the limit in the amount of money available, particularly as the amount grows with each payment from the lender, whether in lump sum or monthly payment.

A reverse mortgage is still a relatively new option for homeowners. You’ve probably heard the ads on television and radio, where they tell you how wonderful it is to have a reverse mortgage their marketing methods are evident if you know what to watch for. The trouble is, a reverse mortgage does have disadvantages, they just aren’t discussed as much by those who sell them as all the wonderful advantages. Let’s take a look at some common ways of marketing a reverse mortgage.

Appeal To The Older Seniors

A reverse mortgage can only be marketed and sold to seniors who are age 62 or older. And so, the ads are targeted to that segment. They usually have celebrities who are seniors as the spokesperson, and they project a we’re all in this together, let’s help each other feeling. Seniors watching the ad are supposed to feel a kinship with the spokesperson, and as if they can trust the man or woman with gray hair like theirs.

Appeal To The House Rich, Cash Poor

Another qualification to be able to buy a reverse mortgage is for the homeowner to either own their home altogether or to have such a small mortgage that it can be either paid off when the reverse mortgage closes. Many seniors are in this position, as they have often paid off their 30 year mortgage many years earlier. Their home has a lot of equity, since house values have risen so much. If they were to sell their home, they would get a lot of money more than they initially paid. But often these elderly don’t want to leave the home they love. They want to stay in their dream home , but they are having a hard time making ends meet every month. They are house rich, cash poor . Lenders are often marketing reverse mortgages to those seniors who are having a hard time keeping up with their bills, or who have medical payments or home improvements for which they need extra cash.

Appeal To Those Who Want Their Money

Sometimes those marketing reverse mortgages stress that it’s your money, you should use it . The thing to remember is, while the money in your house (the equity) is your money, getting a loan against your home until you sell or die is a very expensive way to get access to your money. There are many considerations you should think about prior to taking out a reverse mortgage, regardless of the marketing you see and hear about them.