Reverse Mortgage Loan Blog

The Aug. 11 article regarding reverse mortgages seemed to be promoting them. People should be aware of the pitfalls.

Anyone who’s at least 62 years old, has significant equity in a home, and has a mortgage that’s paid up or nearly so probably knows they’re eligible for a reverse mortgage. Promotions tout the potential advantages to older homeowners and invite them to call for information.

Once they do, they’ll learn that reverse mortgages are complex and expensive. For some eligible homeowners, these loans are a costly means of tapping cash that could be accessed more prudently some other way.

For financially distressed homeowners in their 60s, a reverse mortgage will ease money troubles in the short run but could leave them in even worse shape when the cash runs out.

Reverse mortgages are complicated, with different types and an array of rates and terms.

The transaction costs of a reverse mortgage - the extra fees apart from interest - can eat up a big chunk of a borrower’s home equity.

A reverse mortgage backed by the Federal Housing Administration is insurance to the lender. If the borrower defaults or passes away, any shortfall to the lender after the sale of the home is made up by the FHA, as in any other FHA loan.

If you’re in your 60s or younger and facing financial difficulties, you should probably avoid taking out a reverse mortgage. Odds are that such a loan would quickly swallow your credit line and sacrifice your home equity without being a long-term solution.

If you can afford the monthly payments, a home equity loan is a less drastic alternative. Or perhaps a family member could cover living expenses in exchange for a fair amount of equity in your house, paid back when you die.

Another option is to sell the home and use some of the proceeds to buy a smaller, cheaper one.

Found here.

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