What Is A Reverse Mortgage? (Part 4)

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Medicare are not affected, Medicaid and other need-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.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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	Lew Corcoran, Sr. Mortgage Consultant Reverse Mortgages / FHA Loans / VA Loans USDA Rural Development Loans in Massachusetts and Florida Save on closing costs when you apply for a mortgage online ActiveRain Blog / Localism / New England Properties The Mortgage Market Watch and Interest Rate Lock Advisory

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