What Is A Reverse Mortgage? (Part 4)

Reblogger Jim Frimmer
Real Estate Agent with HomeSmart Realty West CalBRE #01458572

Here are some answers to some of my questions that I had not even thought of when I did my post about reverse mortgages.

I always disable comments on posts that I reblog, so click here to visit Lewis over in Brewster, Massachusetts, and read through his incredibly informative 12-part series (so far) about reverse mortgages.

Original content by Lew Corcoran MA License# 9518264

What Is A Reverse Mortgage? (Part 4)
A 12 Part Series

Part 4 - Pros and Cons of a Reverse Mortgage

Why Should You Consider a Reverse Mortgage

  • Allows the homeowners to stay in their home permanently.
  • Pays off existing mortgages on the home.
  • Simple to qualify for because credit score and income are not considered.
  • No monthly payments are due for as long as the homeowner lives in the home.
  • The homeowner receives payments on flexible terms:
  • Credit line for emergencies
  • Monthly income
  • Lump sum distribution
  • Any combination of the above
  • A reverse mortgage can not get "upside down" so the heirs will never owe more than the home is worth.
  • Heirs inherit the home and keep the remaining equity after the balance of the reverse mortgage is paid off.
  • Proceeds are not taxable.
  • The interest rate is lower than traditional mortgages and home equity loans.  

Reasons Why You Shouldn't Do a Reverse Mortgage

The fees on a reverse mortgage are the same as a traditional FHA mortgage. But, the fees are higher than a conventional mortgage because of the insurance premium. The largest costs are:

  • Upfront FHA Mortgage Insurance Premium of 2% of the maximum loan amount
  • Origination fee - 2% of the first $200,000, then 1% of the remaining maximum mortgage amount, but not to exceed $6,000
  • Although Social Security and Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.
  • Counseling. The program is not well understood by most individuals, and all borrowers must get counseling on reverse mortgages. However, the availability of independent reverse mortgage counseling helps.


Next: Part 5 - Reverse Mortgages, Income and Taxes
  

Part 1 - Definition of a Reverse Mortgage
Part 2 - Reverse Mortgage Eligibility Requirements
Part 3 - Myths and Frequently Asked Questions of Reverse Mortgages

 

If you're 62 or older and are looking for money to finance a home improvement, pay off your current mortgage, supplement your retirement income, to pay for healthcare expenses, or even to buy your retirement home, then consider getting a reverse mortgage. Find out how a reverse mortgage can use the equity in your home to pay you.

 

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Jim Frimmer

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