1. Using Reverse Mortgages for Short Term Fixes.
While there are definitely times where a short term fix is needed, the cost of a reverse mortgage usually makes it more beneficial if you are going to keep it for several years. If foreclosure is imminent or there are repairs that need to be made to your home that can't wait, then it makes sense short term. Knowing the actual fees associated with your new loan will help you determine if it makes sense for you. A trusted loan officer will be able to guide you, but ultimately the decision should be yours.
2. A Reverse Mortgage Can Affect Your Government Benefits.
The benefit that is most commonly affected is Medicaid. If you are on it, you know that there is a limit to how much cash you are allowed to have to be considered for this program. What can happen is; the senior uses a reverse mortgage to get a lump sum of money to do some repairs to their home. They withdraw $20,000 and put it in the bank waiting for the work to get done. When the new month rolls around, they have exceeded the Medicaid limits, and now can be disqualified. Another way that it can happen is when using a reverse mortgage to get additional income monthly. If you needed only $200.00 a month to make ends meet, but you got $400 a month so you could have a buffer, after several months you could save up "too much" money and be disqualified.
3. Doing Your Reverse Mortgage Through a New or Inexperienced Loan Officer.
It may be hard to believe, but bank loan officers don't have to be licensed or trained to the States standards. On the other hand, mortgage brokers have very strict criteria set by the State to be allowed to do loans for the public. Virtually anyone can be a loan officer at a bank and experience is not necessarily a requirement. You could walk into a bank, apply for the job, and be taking applications in a very short period of time. It may be a bit biased, but I would prefer to deal with someone that is a trained professional, one that is licensed and can be held accountable to the State. Since the commission that a loan officer earns can be pretty high, it can tempt the younger, less experienced ones to overcharge in the hopes of making a big payday.
4. Avoiding a Reverse Mortgage Because of Fear of the Unknown.
It seems very common to find people that are afraid of a reverse mortgage just because they can't find someone that they can trust to explain it in a way they can understand. When it sounds too good to be true, they tend to shy away. Let me start by saying there are always "experts" on topics that they know nothing about. Even for someone who knows the truth, it is almost overwhelming the amount of disinformation being spread. Some financial planners will tell you that you could lose your home. Others will say you are going to leave more debt to your heirs. In an attempt to soothe your concerns, here is a little advice. First, find a loan officer you trust. If you are uncomfortable with your current loan officer, find another one. You are not obligated to anyone just because you talked to them first. Second, don't listen to everyone's advice that throws it at you. You can read the article "Bad Advice From Good People on Reverse Mortgages" and get an in depth look at who to listen to. To summarize it, you should look to get advice from the professional in the field. Your financial planner may be great with your investments, but has probably never originated a loan. It is always recommended to get advice from your loved ones, but make sure they know what they are talking about. Maybe invite them to listen in on your next meeting with your loan officer. Also, please don't disqualify yourself because you think you may not qualify. Just to reiterate, get the advice from a professional in the mortgage industry that specializes in reverse mortgages.
5. Being Pushed into a Reverse Mortgage.
It only takes about 10 minutes to teach you everything you need to know on a reverse mortgage. But you will probably have questions that will make you more comfortable when you get the answers. Sometimes these questions take a little time to formulate, so don't let your loan officer rush you into making a decision. Don't mistake doing your loan quickly with pushing you to make up your mind in a hurry. Once you have determined you want a reverse mortgage, the process should be fairly quick. It will take about a month to a month and a half to get your loan closed.
6. Trying to Get More Money by Waiting Until You are Older.
The title says five, but here is a bonus one that came up. It is not always the best option to wait until you are older to get more money. When interest rates are as low as they are, it is more beneficial to do your loan now instead of later. While it is true when you are a couple years older you will get more money available to you, this assumes the interest rate doesn't change. On the other hand, if the rates go up, your age won't come close to making up the difference you lose. A rate change of a 0.5% can make tens of thousands of dollars difference. A few years will make only a few thousand dollars difference.
Are you looking for more great information about reverse mortgages? Visit Redwood Reverse Mortgage for more articles and blogs or see our Reverse Mortgage Calculator to see what you qualify for.
David Prulhiere is the owner of Redwood Financial Services and specializes in Reverse Mortgages while educating his clients.
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