Reverse mortgages not for everyone
- Posted by admin on October 31st, 2008 filed in Reverse Mortgage Info
- 1 Comment »
Dear Dr. Don,
What do you think of reverse mortgages? We are in our 70s and live on a small income.
- Joyce Juncture
Dear Joyce,
Reverse mortgages are becoming popular as retirees with inadequate retirement income choose to tap the equity in their homes without the strain of adding loan payments to the monthly nut.
They’re not for everyone. The closing costs on these loans are coming down, but they are still very expensive. Because you’re not making loan payments, the loan balance grows over time as the interest expense is added to the outstanding balance.
The requirement that at least one of the borrowers occupy the home as a primary residence can be problematic. For example, if health care or other requirements require both borrowers to live away from the home, it will trigger the loan to be called.
People with reverse mortgages also cannot tap the equity in their home for needed home repairs or other expenses.
It’s a hard enough decision to commit to a reverse mortgage, let alone decide what to do with the loan proceeds. There’s been a fair amount of press about how reverse mortgage borrowers have been pressured into buying annuity contracts that weren’t appropriate for their financial needs. These borrowers often face high surrender charges if they decide to cash out.
Found here.
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October 31st, 2008 at 12:19 pm
Reverse Mortgages were created with the purpose of giving retired Senior Citizens, age 62 or older, a steady income. The senior citizen must also live in his/her home. This income is derived from the equity of the home by a lender. The lender is not reimbursed until the time the home is sold. One caution about reverse mortgages is that the APR on reverse mortgages is usually higher than that of a traditional mortgage. There are three types of reverse mortgages.
The first type of reverse mortgage is Single Purpose reverse mortgage. Single Purpose reverse mortgages are usually granted to those with low to moderate incomes usually by the government. The purpose of this type of mortgage is to help the homeowner pay for things involving the home and property such as taxes, improvements, and/or repairs.
The second type of reverse mortgage is Home Equity Conversion Mortgages (HECM) also known as federally insured reverse mortgages. This loan is backed by HUD (Housing and Urban Development). This type of loan is pricier than the Single Purpose loan but does not require single purpose use. HECM loans require that you meet with a counselor to discuss costs, risks, and possible alternatives including choosing one of the other two types of loans.
The third type of reverse mortgage is proprietary. The companies that have created them insure these loans. They are very similar to the HECM reverse mortgages in that they are pricier than the Single Purpose loans and follow the same guidelines in determining who qualifies for one and how much. Proprietary reverse mortgages differ from HECM loans because they do not require meeting with a counselor before applying for one.
Both reverse mortgages however determine the amount you may borrow from assessing factors such as age, home value, location, and interest rates. To determine which reverse mortgage is right for you, you should contact a loans officer knowledgeable of reverse mortgages or a HECM counselor.