Reverse mortgage pros and cons

by the Editor, SeniorInsider | Jun 02, 2011

Researching reverse mortgage pros and cons are an important consideration when you are thinking of taking out a reverse mortgage. While you probably qualify for a reverse mortgage if you are over the age of 62, whether or not it is the right decision for you is another matter. Check out all the reverse mortgage pros and cons before you make up your mind, and get some expert advice if you have any qualms about the matter.

Reverse Mortgage Pros and Cons for the Typical Senior

The biggest upside to a senior’s reverse mortgage is that if you have enough equity in your home, you can get a lump sum of cash, a monthly cash payment, advances through a line of credit, or a combination of the above. Many seniors are currently experiencing economic difficulties, possibly even having trouble making their regular monthly payments. Because of the economic downturn across the board, seniors in particular must consider reverse mortgage pros and cons before agreeing to a reverse mortgage to meet monthly financial obligations.

Although reverse mortgage companies prefer to lend money to older people, basically anyone who is over 62 will qualify so long as they have enough equity in their home. If you have considered the reverse mortgage pros and cons and decided you definitely will take out a reverse mortgage, your existing mortgage will be paid off. Your credit history is not relevant to a reverse mortgage, and FICO scores are not even checked. More importantly to most seniors, a regular monthly paycheck is not required in order to obtain a reverse mortgage. Because of all these reasons, most seniors with sufficient equity in their home will qualify for a reverse home mortgage.

Reverse Mortgage Pros and Cons—Fees Involved

You will pay serious fees in order to get a reverse mortgage; sometimes the origination fee can run as high as $6,000, then you will add closing costs, service fees and mortgage insurance premiums to that figure which can add another several thousand dollars. The interest on your reverse mortgage will accrue until your death, at which time the loan amount plus interest will be repaid to the lender. You will be required to pay for mortgage insurance premiums which pays your lender should your home turn out to be worth less than the amount owed at the end of your loan.

You will also have to pay monthly lender fees which are usually charged to the borrower as a fee to disburse your monthly payment. Normal closing costs will apply, including recording costs, title policy insurance, escrow fees and any other fees. Wells Fargo makes many of the reverse mortgages and has an online calculator to determine applicable fees. If you put in an age of 65 and a home which is worth $500,000, the closing costs comes to $20,943, with a lump sum payment of $129,614, and interest rates which can range as high as 14%.  Put in your own numbers and see what figures come up before you decide on a reverse mortgage.

Reverse Mortgage Pros and Cons for Retirement Planning

If you are in the beginning of retirement planning, you probably don’t even need to consider the reverse mortgage pros and cons, but should rather plan your retirement so a reverse mortgage does not become necessary in the future. Smart planning for your future will find you visualizing how you will be able to live on the fixed amount you plan to retire with, as well as what you will do should some of your retirement funds dry up, or should your expenses go up dramatically.  Many seniors do not realize that the terms of many reverse mortgages can end up knocking them out of their home should they be away for more than 12 months in a nursing home or other care facility. Thorough financial counseling for seniors can ensure you don’t find yourself in the position of having to take out a reverse mortgage in the future.



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