Reverse Mortgage Loan Blog

Maybe you’ve seen the commercials or ads for reverse mortgages. While they can mean financial freedom for many seniors, there’s a lot you need to consider before signing on the dotted line.

A reverse mortgage is a special type of home loan that lets you borrow money against your house that isn’t repaid until you move out or die. It’s a costly option for some and an answer to prayer for others.

Ted Edmonds bought his Livonia home in 1956 for $18,000.

He and his wife raised 4 kids there and took out a couple of home equity loans to pay for weddings along the way. Those small loans along with the cost of simply living added up.

“When my wife was alive with her social security check it was alright, but when she died I found that I did not have enough money to live here and it’s hard for an 86 year old to find a job,” said Ted.

Ted didn’t want to sell the house filled with so many memories, so he became one of the growing number of seniors who took out a reverse mortgage - you get paid to live in your house.

John McParland from Colonial Mortgage said, “You’re going to receive money every month, that’s wired into your account, or whatever the case may be, on a tax free basis.”

Essentially, Ted and others are tapping into their home’s equity. They send him $781 a month.

You have to be 62 to qualify. Besides a monthly payment you can also choose to take a one-time lump sum, or use it as a credit line and you don’t need to pay it back as long as you live in the home.

McParland said, “Somebody passes away, passes on, the loan is going to be paid off, they move, it’s going to be paid off, they move into a retirement home, only moving across town, it’s going to be paid off.”

That happens when the house is sold. Keep in mind, reverse mortgages use up some or all the equity in your home, leaving fewer assets for your heirs.

Ted said, “We finally decided the kids didn’t need my inheritance. They said ‘dad, we want you to use your own inheritance, your own house for whatever you want.’”

But these loans come with a price tag. They’re often very expensive, up front fees and closing costs can be high, and the amount you owe increases over time as the interest compounds.

AARP numbers show a 74-year-old borrower living in a $300,000 home could pay around $30,000 for a typical reverse mortgage, half in upfront fees, and that doesn’t include interest.

According to the FTC, it may not make sense to incur the reverse mortgage costs if you plan to move or sell your house in the near future.

They also warn be wary of anyone pressuring you to get a reverse mortgage to fund an annuity or other investments.

Investing money from these loans is an especially bad idea because the loan is likely to cost more than you could safely earn.

Ted and his kids did their homework and couldn’t be happier with their decision.

Bottom line, all the experts say do your homework about reverse mortgages and don’t rush into any decision.

Protecting Yourself During the Reverse Mortgage Process

As with any important financial decision, always shop around for the reverse mortgage that best suits your financial situation and needs.

HUD/FHA-approved counseling agencies are available to assist you with your reverse mortgage questions. HUD/FHA will also refer you to a reverse mortgage lender free of charge. Contact HUD/FHA by calling 1-800-225-5342 or visit the reverse mortgage section of HUD/FHA’s website at: http://www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm

You can also protect yourself by:

• Consulting with an independent financial adviser;

• Considering the costs and fees associated with obtaining a reverse mortgage, which can sometimes be high. It may not make sense to incur these costs if you plan to move or sell your house in the near future, at which time your reverse mortgage loan will become due;

• Finding out whether the reverse mortgage you are considering is insured;

• Finding out whether your repayment obligation is limited to the value of your home at the time the loan becomes due;

• Making sure any reverse mortgage payments are first made directly to you;

• Being wary of anyone who tries to pressure you into a decision that you aren’t completely comfortable with, such as: (1) investing the payments from your reverse mortgage into an annuity, insurance policy, or other investment product, or (2) dictating the option you select for receiving your reverse mortgage payments.

More Information & Complaints

For more information on reverse mortgages, visit the HUD/FHA website listed above or the AARP website at: www.aarp.org/revmort;

You can contact the Attorney General with reverse mortgage questions or complaints online at www.michigan.gov/ag or by calling 1-877-765-8388. Questions or complaints regarding a licensed reverse mortgage broker or lender should be directed to the Office of Financial and Insurance Regulation online at www.michigan.gov/ofir or by calling 1-877-999-6442.

Found here.

Bookmark It

Hide Sites