Reverse Mortgage Loan Blog

Many senior citizens find themselves in financial difficulty as the Michigan economy continues to weaken and GM downsizes.

There are a number of things seniors can do at the first sign of financial trouble such as reduce costs, be more efficient with expenditures and perhaps even consider a part-time job. Another weapon in the senior arsenal during difficult financial times is a reverse mortgage.

A reverse mortgage is for seniors who are age 62 and older. Basically, the reverse mortgage provides a way for seniors to convert the equity in their home into cash. The beauty of a reverse mortgage is that as long as you stay in your home you never have to repay the mortgage.

The mortgage, including interest, is only due when the home is sold or the homeowner passes on. A reverse mortgage allows the senior to remain in the home for as long as he or she wants while enjoying the equity during his or her lifetime.

The proceeds from a reverse mortgage are for the homeowner to use for any purpose they choose. I generally recommend reverse mortgages to pay off primary mortgages, home equity loans or other types of debt. Reverse mortgages are also effective in providing money to cover living expenses. I generally don’t recommend reverse mortgages for such things as vacations, long-term investing or any frivolous expenditure.

Reverse mortgages can be costly. Even though the government has capped origination fees, there are other fees associated with a reverse mortgage. Not all reverse mortgages and reverse mortgage companies are the same. Therefore, it pays to shop around and pay particular attention to cost and interest rates. The terms of reverse mortgages are not the same. Interest rate charges can either be fixed or adjustable.

In addition, there are different ways to get your proceeds. Therefore, before you decide that a reverse mortgage is for you, you need to do your homework. Take your time. There are many resources which can help you learn more about reverse mortgages. AARP offers a free guide “Reverse Mortgage Loans: Borrowing Against Your Home.” You can get a free copy of this pamphlet by visiting AARP’s Web site at www.aarp.org/revmort. There are also other educational materials available on the Internet. The more you know before you begin the process of looking for a reverse mortgage, the more beneficial it will be for you.

Although I can’t tell you everything you need to consider in a reverse mortgage, I think it is important to keep some things in mind. First, reverse mortgages are not about your credit. Factors that go into the equation regarding how much you can borrow are age, interest rate on the loan and equity in the home. The older you are, the more you can borrow. In addition, the lower the interest rate and the more equity you have also increases the amount you can borrow. There are, however, maximum amounts allowed. There are limits that are set by the federal government. The maximum for a reverse mortgage is $417,000 to $625,500. This is a sizable increase from the previous limits which were $200,160 to $312,790.

The recent changes in federal rules can be beneficial to seniors. Seniors can now buy a home and immediately obtain a reverse mortgage in one transaction. In the past, this required two separate transactions, incurring multiple mortgage fees. This probably makes sense for seniors who are downsizing and can use the extra cash to cover living expenses.

These are difficult times and seniors are affected by the downturn as much as anyone. Reverse mortgages are a financial tool that can ease the burden on many seniors and something to explore. Although reverse mortgages can be effective when used properly, they are not for everyone. When reverse mortgages are not used correctly they can have a devastating financial effect. Therefore, proceed with caution.

Some financial advisers will tell you a reverse mortgage should only be used as a last resort. Although I don’t necessarily subscribe to this line of thought, I don’t believe it should be used at the first sign of financial difficulty.

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