Reverse Mortgage Loan Blog

I used to think that reverse mortgages were a terrific idea. Why shouldn’t seniors who have paid off their homes cash in on their equity to avoid poverty in their sunset years?

But as with most things, reverse mortgages get a lot more complicated the closer you look at them.

Here’s the basic idea. After age 62, you can access the equity built up in your home by getting the lender to pay you back in cash what you already own in property. You can take it as a lump sum or monthly payments; the mortgages come in several different varieties. Some are federally insured, some are for a specific purpose only, such as rewiring the house, and others are privately backed mortgages. A rash of TV ads make it all sound like easy money.

The originating lender makes money on your decision by charging you upfront fees, and they can be substantial. One woman testified to Congress that her mother already had a low-cost home equity loan, but she was persuaded by a lender to get a reverse mortgage that cost her more than $16,000 in closing fees.

Fees vary from lender to lender. It’s likely that this woman did not shop around for the best deal.

But even with all the fees paid by reverse mortgage holders, none of that goes toward keeping the whole program solvent. The current drop in home values has created a shortfall. The federal government, which insures many of these mortgages, needs money to make up for the problems created by home devaluation.

If Congress does not appropriate hundreds of millions to help insure the mortgages, the lending standards could tighten and fewer seniors would qualify. Currently the funding is being debated in the Senate, and is due for a vote this week. (Find out more at http://reversemortgage daily.com/2009/07/24/)

Let’s say the Senate gets it all worked out and your opportunity for a reverse mortgage stays the same. That still doesn’t mean you should get one.

Reverse mortgages need a very careful look, and you will be required to get professional advice from an unbiased counselor before you jump into one. Your heirs are not that unbiased source.

Some things to consider:

••If you just need money for something such as a new furnace, you should first find out if there is a program that would help you get one without taking out a reverse mortgage. Certain programs are targeted toward helping seniors and may solve the problem without the added costs of a reverse mortgage.

••It may be easier and cheaper to take out a home equity loan or line of credit, or even to refinance your home. Many lenders offer home equity loans with no upfront costs at all. Then you will have access to the equity in your home without paying a big upfront fee.

••Be sure to ask if the reverse mortgage will affect your ability to qualify for Medicaid. The rules vary from state to state. Also, ask questions about what happens to your home if you are hospitalized or in a nursing home. It is possible that your home would be sold out from under you if you are in a nursing home for 12 months, even if you hope to return home later.

••Oh, and the grandkids. If you are hoping to leave the family something upon your death, a reverse mortgage won’t help. It eats away at that nest egg.

Some seniors might hear about it from a friend, talk to their kids about it, and consider their research done. That’s why part of the reverse mortgage legislation makes loan counseling mandatory before you sign. Ask questions and don’t sign until they are all answered.

Found here.

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