You've got to admit, there are two sides to everything. Whether or not the good outweighs the bad is the real question. Are reverse mortgages good or bad? Let's get to the real truth starting with the "bad".
Reverse Mortgage Cons:
1. Mortgage Insurance - All FHA loans have mortgage insurance, regardless of how much equity you have available. In the case of a reverse mortgage, it is for the possibility the balance of your loan may exceed the amount your home is worth. This only applies when it is time to sell your home and is usually in the event that property values decline. Remember, even if you use up all your equity, you will never be kicked out of your home. Because of the Mortgage Insurance, you and your heirs will never owe more than your home is worth. That is what you are paying for.
2. Compound Interest - Everyone likes to earn it, no one likes to pay it. Simply defined, it is interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. If you've ever had a savings account or investment that you rolled the earnings back into, you have likely earned it. Since you are not making payments on your loan, compound interest will add up.
3. Spending Your Kids' Inheritance - I have heard some say that it is wrong to spend the children's inheritance. But, I have to ask, "Whose money is it"? In my opinion, if you need the money, use it. You can leave what is left over, and that should be enough. You shouldn't blow the money, but use enough to make life comfortable.
Reverse Mortgage Pros:
1. Maintain Your Independence - What could be more embarrassing than asking your kids for financial help to cover monthly expenses? Would you like to need to move in with your kids? You can use your home's equity to make ends meet and keep your dignity.
2. Keep your home - Have you recently thought of moving? How painful of an idea is that? A reverse mortgage will allow you the financial edge to be able to keep your home while affording the retirement you deserve.
3. Making Life Affordable - So many impoverished seniors have become so accustomed to being broke that they don't even know that they are. Reverse mortgages allow you to access your equity and use it as a lifetime income stream. You might feel like you've won the lottery if you were able to get a few hundred dollars more every month.
4. No Mortgage Payments - There are no monthly payments, and you don't have to pay back the loan as long as you maintain the home as your primary residence. This can really be helpful when times are tough.
Since fees are not a consideration for getting a loan, they weren't mentioned above. The new programs available will allow you to (usually) waive any origination frees and possibly get a substantial credit towards your mortgage insurance. The reduction in fees is in the neighborhood of 50%, saving you thousands of dollars.
I have a confession to make. I am a reverse mortgage loan officer, but I truly believe that a reverse mortgage is the best tool out there to help a senior. While I agree they are not for everyone, there are a lot of folks that could benefit from one. It makes me cringe to hear someone say that a reverse mortgage is bad. They are neither bad nor good. It just depends on your need and how you use them.
Now it is up to you to decide. Is this a tool that can help you or someone you know? Will your life be enhanced with a reverse mortgage? If you are still unsure and want more information, read more of our articles on our website.
David Prulhiere is the owner of Redwood Financial Services and he specializes in reverse mortgages. You can read more about reverse mortgage pros and cons? There are more articles and blogs with additional reverse mortgage information
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