Reverse Mortgages are, in my opinion, a last resort for homeowners age 62 or older. If an agency is offering to help you find a reverse mortgage lender for a ’small percentage’ of the loan then just stop talking to these people. HUD provides this information without cost, just call 1-800-569-4287 for the name and location of a HUD approved housing counseling agency in your area. Also, if you are being urged to take out a reverse mortgage to obtain a deferred annuity then stop talking to these people as well. Deferred annuities are a bad idea for most seniors because they can restrict access to retirement savings well beyond one’s life expectancy. You can also receive free information about reverse mortgages by contacting AARP at 1-800-209-8085. Considering that 45% of reverse mortgage borrowers are single women, getting the right advice from objective parties is critical to honest information. Please do your research and closely analyze the pros and the cons before making a decision about a reverse mortgage.
**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.
The problem here is that there are vast seas of people in various industries (and possibly family members) who would love nothing more than to get their hands on your hard earned money. A financial decision involving hundreds of thousands of dollars and probably the loss of your home should be made with caution. So let’s take our time, do our homework, so that we can make an informed decision. Separating the good information from the bad can be difficult because of all the people trying to get their hands on your money.
A reverse mortgage should only be considered if your income is such that you cannot pay your bills and you plan on living in your home until your death. You are willing to tap the equity in your home using a reverse mortgage – but only with the complete understanding that your home will likely be sold at the time of your death by the lender – or by a family member selling the home to repay the?reverse mortgage.
What is a reverse mortgage?
From the AARP website “A reverse mortgage is a special type of home loan that lets a homeowner convert a portion of the equity in his or her home into cash.” Let’s put this into practice. Your home’s market value is $250,000 and you only owe $100,000. This leaves you $150,000 of equity that could possibly be tapped using a reverse mortgage. Let’s say your current house note is $900 per month. A reverse mortgage could approve a $100,000 loan and supply this in $900 per month increments to you. You could then use this $900 per month payment from the reverse mortgage to pay your house note.
This is how the commercials for a reverse mortgage can say things like “eliminate your house note,” or “a reverse mortgage will get rid of your house note and provide you with cash for any use you see fit.” While all of this is true these commercials fail to mention the “Cost” of this reverse mortgage. You didn’t actually think they were just going to give you the money with no future financial obligation on your part?
These reverse mortgage loans often have very high fees (more on this later) and interest continues to be added over the life of the loan until it is repaid or you die and your estate has to reconcile the debt against your home.
The good things about a reverse mortgage
The reverse mortgage loan is a mortgage against your house which is paid by a lump sum, monthly payments, or a line of credit – usually some combination of these three. Your qualification for the loan is not dependent on your income or credit rating. Only the value of the home versus equity is considered. The reverse mortgage does not have to be repaid until you die or move out and you get to remain in your home (keeping the title). The lender cannot come after your other assets such as other properties or investments, the loan only applies to the house.
The bad things about a reverse mortgage
From consumerlaw.org (you should click on this link) “Reverse mortgages are high-cost loans. Origination fees and insurance premiums typically eat up $25,000 or more of the total proceeds of a common reverse mortgage on a $250,000 house….Interest charges, which pile up over the life of the loan get added on top of that.”
If you take out a reverse mortgage and then later on decide to move you could be left with less cash than if you had simply sold the home in the first place without acquiring a reverse mortgage.
If you are not in love with your current home perhaps you could just sell it instead. If you were left with $100,000 cash after the sale, could you move into an apartment instead and just keep the cash on savings? At a rent of $700 per month that much money would last you about eleven years if applied only to rent. As you can see there are many options to consider.
**Remember do not take out a reverse mortgage to buy other financial investments. The fees and interest of the reverse mortgage kill any profit you may earn from investing. Also, it’s true that a reverse mortgage allows you to pass the home on to your heirs – but keep in mind that the price tag of the mortgage will still be attached to it. What good is passing on a home to heirs with an $110,000 debt unless your estate has enough assets to cover this debt, leaving your heirs with the likely choice of renting out the home or selling it altogether?
This brings me back to my original statement. Don’t take out a reverse mortgage unless you are cash poor, need money for monthly bills, and you are not bothered by the idea of your home being sold at the time of your death.
The USA Today has an article describing how reverse mortgages could be unwise, especially in early retirement. In the article they interviewed Ernestine Boach age 62, who had taken out a reverse mortgage to buy deferred annuities since a financial adviser told her it would be a “wonderful deal for me.”? To keep her home Ernestine ended up taking out a loan in the amount of $140,000 to pay off the reverse mortgage so she could keep the house in the family in the event of her death.
“I was naive,” she says “I still am. I don’t understand all these policies. But I hope this story helps someone else.” Indeed, that makes two of us.
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Those reverse mortgages are just another way for big banks to get their hands on our hard earned money! Any fool can see that. If your house declines in value after you take out a reverse mortgage, you are screwed, and so are your heirs. You (and they) lose the family home. If you want to take out a reverse mortgage, fine, but you and your children should know, up front, that it’s really a home sale.
This reverse mortgage stuff is all over the radio waves. I’m going to send this article to Tom Martino, the Troubleshooter. He’s a big proponent of the reverse mortgage. I just knew deep down in my heart that they are stealing houses from senior citizens. Even people like Robert Wagner should be castigated for being a spokesman for this type of robbery.