Reverse Mortgage Loan Blog

When the real estate market goes into a slump, as it has now, several supposedly innovative plans are promoted. Two that receive a great deal of TV time are the reverse mortgage, which was designed to supplement the income of senior citizens, and the “pennies on the dollar” purchase of foreclosed properties.

Having been in real estate most of my adult working years, I have seen these promotions come and go. My advice is to study them carefully before taking the plunge. Remember the old adage about no such thing as a free lunch.

Although a good many lenders are in deep trouble right now, anyone thinking of buying a foreclosed home should forget about stealing it from the lender. Although some foreclosed properties move at well below market value, most buyers will have to pay almost the full price.

Many of the homeowners had been trying to make their mortgage payments for a period of time but couldn’t do it. So where would they have found the money for the ongoing expense of home maintenance? The new owner, who believes he got a bargain, may be faced with serious maintenance problems that the lender is happy to escape.

Foreclosed homes may be a good buy, but the purchasers should know exactly what they are doing and how to go about the process. This takes time and study. Rundown properties sell more cheaply than homes in good shape, but in the end, many a homeowner has wondered if it was worth the cost. Buyers should carefully inspect the property before making the deal.

Then there is the reverse mortgage, which is being touted by several past-their-prime celebrities on TV. The reverse mortgage has appeal to many senior citizens who could use a little help with the monthly bills. There are some fairly strict guidelines, chief among them that the borrower must be at least 62 years old. And reverse mortgages tend to be costlier than other home loans. The fees are high, and a reverse mortgage requires people get counseling before they make the plunge. They might be better off selling their home and investing elsewhere.

Under this plan, the lender pays the homeowner a certain sum each month or each year for ordinary living expenses. This amount is, of course, deducted from the equity in the home. It doesn’t need to be repaid, but it probably will take a big share of the profits (if any) when the homeowner sells, or out of the estate. The homeowner will not need to continue mortgage payments but still will be responsible for property taxes, homeowner’s insurance and home repairs. And it will be quite expensive when compared to other types of loans.

For those looking into these plans, consider the alternatives instead of believing TV ads.

What if you run out of equity before you die? Don’t rely on the value of your home increasing; as we have seen in the past year, it might decrease. Then you have very few assets to shore you up, and you have little or no estate to leave your heirs. You may have to rely on them for help.

There is a great deal to consider. Get professional advice from someone other than a TV celebrity.

Found here.

Bookmark It