Senior's reverse mortgage alternatives

by the Editor, SeniorInsider | Jun 02, 2011

One of the hottest topics among retirees appears to be a senior’s reverse mortgage. Assuming you are at least 62 years old and owe little to nothing on your home, you are likely eligible for a reverse mortgage which comes through the FHA and is typically known as an HECM, or Home Equity Conversion Mortgage. While the obvious upside to a senior’s reverse mortgage is the fact that you are given either a lump sum of cash or a monthly cash payment, with no monthly re-payments due, you should be aware of the significant drawbacks involved in a senior’s reverse mortgage before you sign on the dotted line.

Drawbacks of a Senior’s Reverse Mortgage

Topping out the list for the negative aspects of a senior’s reverse mortgage is the origination fees of the loan, which can run as much as $6,000, while other closing costs, service fees and mortgage insurance premiums can bump that figure up thousands more. Until the loan is repaid (generally after your death) interest continues to accrue, sometimes at an alarming rate.

Alternatives to a Senior’s Reverse Mortgage

  • Many financial consultants believe that a senior’s reverse mortgage should never be taken advantage of unless you are in your late 70’s or 80’s, still relatively healthy and plan on staying in your home until your death. Should you meet all those requirements and be suffering some economic hardships in your life, a reverse mortgage might be able to provide the boost in income you require. In any case, you should thoroughly examine all alternatives to a senior’s reverse mortgage before you make up your mind to go this route.
  • Consider tapping some other resources you may not have thought of before you decide on a senior’s reverse mortgage. You may have been paying on a life insurance policy for many years which you feel is no longer needed. If you have built up a substantial amount of cash value in your life insurance policy, you could cash in the policy, giving you enough cash to cover your present financial obligations.  Is it possible that you are in line to receive any sort of inheritance in the near future, or do you have investments or real-estate holdings which could be liquidated? Consider further whether you are eligible for any low-income senior assistance.
  • If you currently have a mortgage on your senior home, have good credit and have a fair amount of equity in your home, check into refinancing before you decide on a senior’s reverse mortgage. Although you will have to make regular monthly repayments, the low interest rates available right now might make this a more economically feasible choice, and could allow you more flexibility than a senior’s reverse mortgage.
  • Have you thought about relocating to a less expensive area in order to stretch your retirement money? This option has become more and more popular for seniors who are fine with leading a simpler life, and have no problem with downsizing a bit. Most seniors who have lived in the same home for years and find that it is probably bigger than they actually need, requiring lots of upkeep and maintenance.
  • Sharing your home with another senior who may also be cash-strapped is also an alternative to a senior’s reverse mortgage. With two people sharing expenses, you may find that you don’t need to consider a reverse mortgage as your finances have eased up. Make sure you find a roommate who is compatible with the lifestyle you lead, or this option could turn out to be a solution you wish you had skipped.  Some seniors have even chosen to rent their larger house out while renting a smaller one. By renting, you are letting someone else worry about home maintenance and landscaping, but still own your home.

Make sure you have explored all other options, especially the ones you may not have thought of, prior to signing on the dotted line for a reverse mortgage.



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