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 scores 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, with a minimum of $2,500 but not to exceed $6,000
- Although Social Security and Medicare are not affected, Medicaid and other needs-based government assistance can be affected if too much funds are withdrawn (and not spent) in one month.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, independent reverse mortgage counseling is readily available.
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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