I’ve been told to wait on taking a Reverse Mortgage as a last resort. Why do you think a CPA said that? Is it a loan that is non-reversible? Do you pay interest on the cash in a line of credit when it is spent all the to its end? If a house is paid off & money is tight, but livable, why would a senior take a reverse mortgage? It seems like it only puts them in financial debt until they die or find it impossible to sell if the loan needs to be paid back before any house can be sold to be profitable to owner, is this correct? it seems the people selling this product never touch on a negative, but in order to make a decision I need to know all the negatives. Pls. help. Also are the closing costs negotiable? I had one broker say she could save $1000 on closing costs, while another did not offer it. Pls. helpThanks..
Let me start by saying that we are a reverse mortgage lender who will be the first to tell you that reverse mortgages are not for everyone. But that’s true of any financial product, there just isn’t any one that is perfect for everyone. A reverse mortgage can be a great financial tool when used by the right borrower and for the right purposes. You need to assess your circumstances to see if this is the right move for you based on your goals and circumstances.
For example, do you have heirs and is your primary concern to leave an inheritance or do you need some additional income to live now? Can your heirs help you if you would rather not tap into your equity to ensure that you can leave it to them? Will the reverse mortgage adequately improve your quality of life or will you still be too stretched to live comfortably, even after you get a reverse mortgage?
The reverse mortgage can be a last resort measure for some folks to stay out of foreclosure, but if you still cannot afford the taxes, insurance and maintenance on the home and to live comfortably, then selling and downsizing might be a better alternative for you. It is a default on the loan if you do not keep your taxes and insurance on the property current so if by having the reverse mortgage these would no longer be issues for you, a reverse mortgage is not the right choice for you.
On the other hand, if the reverse mortgage will allow you to live in your home comfortably, allowing you to easily pay any expenses and to live life the way you want to live, then it might be a good loan for your circumstances. The loan never has a pre-payment penalty and you still own your property just as you would with any other loan, so if you decide to sell later and pay the loan off, you can do so.
You do need to remember that as long as you are able to live in the home and not make payments the interest will accrue on any funds you actually borrow, but you receive an amortization schedule from the lender from the very start so you are kept informed of what you would owe at any time from the date of application (not counting any additional draws you might make).
Borrowers who take a reverse mortgage now and have a line of credit available to them that they do not use, do not accrue interest on any funds they have not borrowed and the line of credit grows on the unused portion annually. In other words, the current growth rate is about 4% so if your line is $100,000 and you are not using the money, it stays in the line and no interest accrues the unused portion, but at the end of the year, the line grows by about 4% and your new line of credit available would be approximately $104,000.
Waiting doesn’t always make sense for borrowers because loan programs can change and available amounts could be reduced in the future. Borrower’s ages, interest rates and property values all affect the amount available to borrowers. Right now rates are still so low the maximum amount that HUD will allow under the program are being given when rates are considered. If rates go up just 1% that would drop the amount available to borrowers substantially so waiting could be a risky proposition, especially for those looking to maximize benefits.
Finally, with regard to the closing costs. Some costs are out of the lenders’ control while lenders can control others. There are also times when the amount that the loans can be sold for in the secondary market may allow lender to offer to charge less or even pay some of the borrower’s fees. I would definitely tell you to shop around and get a minimum of 3 quotes from companies like ours that are Better Business Bureau A+ rated companies.
Remember, bigger is not always better! Some companies want to tout their size but then they have huge expenses they have to carry as well and they expect youto pay those costs. Just remember, big companies and famous spokespersons are big expenses and if it’s the same government-insured loan but at a higher cost just for the privilege of going through that company, then it helps them and not you. This loan is all about you. Make sure you get the best deal and the best program for your circumstances. If you’re not sure about something, don’t be afraid to ask. We’re here to help you.