I talk to senior homeowners every day who have tons of questions about the efficacy of Reverse Mortgages. "Is this a good idea for me?" "Will I lose my home?" "Now the bank will be on the title of my property, not me, right?" These are legitimate questions. Many things in life have advantages and disadvantages. Reverse Mortgages are no different. So here are some things that may help you if you're looking for information on Reverse Mortgages:
The PROS of Reverse Mortgages: (also called senior mortgages)• Tax free income guaranteed by the Federal Government which continues as long as your home is your primary residence.
• You can change your plan at any time from a line of credit, cash out, monthly checks, or a combination (depending on what remains).
• The remaining Line of credit grows each month at half percent over the current interest rate.
• Unlike an equity loan there are no income, credit, or health qualifications.
• A good option for seniors who wish to remain in familiar surroundings and in the same community where they've lived for years.
• Moving can cause emotional turmoil for many senior homeowners. Memories were made in your "home sweet home", and close proximity to love ones and remaining in your community may be a better option.
• Reverse Mortgages can satisfy your existing mortgage or debts, though your debts are transferred to your Reverse Mortgage balance. (Your home does not have to be free and clear to qualify.)
• There are no out of pocket costs other than the appraisal fee and HUD counseling. Some HUD counseling organizations will waive the fee.
• You can remain in your home no matter what is owed on your Reverse Mortgage. You can never be forced out of your home as long as your real estate taxes and homeowner's insurance are paid and as long as you maintain your home.
• You can refinance your Reverse Mortgage over and over again as long as there is remaining equity in your home.
• Upon the sale of your property you will never owe more than the home is worth. However, if you choose to pay off your debt and live in your home or if your heirs decide to pay the debt on your passing and retain the home, repayment of the full mortgage debt will be due.
• Your assets cannot be attached to repay the mortgage debt, and the debt does not pass to your heirs or your estate. The house stands for the debt (non-recourse loan).
• Reverse Mortgages have many safeguards: capped interest rates, a limitation on fees, HUD counseling, asset protection (non-recourse loan), no maturity date (cannot become due during a borrower's lifetime).
• Can be a financial tool to help heirs avoid some of the real estate tax.
• Your heirs may be able to claim the interest from your mortgage on their income taxes after your passing. (Be sure to consult your tax advisor for advice.)
Now, those are the pros. Pretty easy, right? Sure, the dutiful old loan officer always gives you the good parts, but there are some things that may be drawbacks to Reverse Mortgages. Here are the cons:
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| Reverse Mortgage Pros and Cons - Is a Reverse Mortgage a Good Idea? |
• A Reverse Mortgage has all the typical closing costs one finds with a typical mortgage. However, they can be more costly. There is FHA mortgage insurance and additional closing costs, but those costs are typical of any FHA mortgage.
• A Reverse Mortgage can reduce your children's and grandchildren's inheritance. A Reverse Mortgage is a rising debt loan since you are not making mortgage payments. It is the opposite of a typical mortgage where equity increases as mortgage payments are made.
• Selling your home can often provide a greater return on your investment than a Reverse Mortgage.
• Moving from your residence in less than five years makes a Reverse Mortgage unwise. It does not make good sense to use a Reverse Mortgage short term.
• If you fail to pay your real estate taxes or homeowner's insurance or neglect to maintain your home, the lender may require repayment of the debt. (Lenders, however, will work with you to cure the default.)
• If you are not residing in your primary residence for a period exceeding 12 consecutive months, the Reverse Mortgage will become due. (Nursing homes, assisted living, moving, etc.)
• If your heirs wish to benefit from your estate after your passing, they can sell the property and keep the remaining equity. They can also can get their own mortgage. However, in keeping the home your heirs must pay the full balance due.
• Medicaid may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each month. (Check with your attorney and Medicaid for info.)
When NOT to get a Reverse Mortgage:
• An equity loan may be a cheaper way of getting cash out of your home.
• If your primary goal is fixing up your home, a community loan may work better.
• If you are ill and assisted living or a nursing home is imminent, do not choose a Reverse Mortgage.
• When family members suggest that a senior Mortgage is not a good option, consider their suggestions and keep an open mind; they have your best interests at heart.
• If your children invite you to move in with them, this may be the perfect alternative to staying in your own home.
• A homeowner whose residence utilizes more than 25% of the total living space for their business will not qualify for an FHA Reverse Mortgage.
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| Reverse Mortgage Pros and Cons - Is a Reverse Mortgage a Good Idea? |
Kathie Adler is a Senior Reverse Mortgage Specialist with Advisors Mortgage Group, an A+ Better Business Bureau rated company with headquarters in Wall, New Jersey and branches found throughout the East Coast. Kathie serves the entire New York and New Jersey area. A resident of Long Island for over fifty years and a senior mortgage expert for more than six years, Kathie deems it a privilege to help senior homeowners remain in their homes. Through her efforts, Kathie Adler has successfully helped senior homeowners out of bankruptcy and negotiated settlements to help homeowners avoid foreclosure on their homes.
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