Reverse Mortgage Pros & Cons
SO WHAT EXACTLY IS A REVERSE MORTGAGE?
Tax Free Income
Tax free income guaranteed by the Federal Government which continues as long as your home is your primary residence.
Change Plans Anytime
You can change your plan at any time from a line of credit, cash out, monthly checks, or a combination (depending on what remains).
Senior Living
A good option for seniors who wish to remain in familiar surroundings and in the same community where they’ve lived for years.
About Us
Reverse Mortgages Can Help with Long-Term Care Expenses, Study Says
A new study by The National Council on the Aging (NCOA) shows that using reverse mortgages to pay for long-term care at home has real potential in addressing what remains a serious problem for many older Americans and their families.
In 2000, the nation spent $123 billion a year on long-term care for those age 65 and older, with the amount likely to double in the next 30 years. Nearly half of those expenses are paid out of pocket by individuals and only 3 percent are paid for by private insurance; government health programs pay the rest.
According to the study, of the 13.2 million who are candidates for reverse mortgages, about 5.2 million are either already receiving Medicaid or are at financial risk of needing Medicaid if they were faced with paying the high cost of long-term care at home. This economically vulnerable segment of the nation’s older population would be able to get $309 billion in total from reverse mortgages that could help pay for long-term care. These results are based on data from the 2000 University of Michigan Health and Retirement Study.
The CONS of Reverse Mortgages:
A Reverse Mortgage has all the typical closing costs one finds with a typical mortgage. However, they can be more costly. There is FHA mortgage insurance and additional closing costs, but those costs are typical of any FHA mortgage.
A Reverse Mortgage can reduce your children’s and grandchildren’s inheritance. A Reverse Mortgage is a rising debt loan since you are not making mortgage payments. It is the opposite of a typical mortgage where equity increases as mortgage payments are made.
Selling your home can often provide a greater return on your investment than a Reverse Mortgage.
Moving from your residence in less than five years makes a Reverse Mortgage unwise. It does not make good sense to use a Reverse Mortgage short term.
If you fail to pay your real estate taxes or homeowner’s insurance or neglect to maintain your home, the lender may require repayment of the debt. (Lenders, however, will work with you to cure the default.)
If you are not residing in your primary residence for a period exceeding 12 consecutive months, the Reverse Mortgage will become due. (Nursing homes, assisted living, moving, etc.)
If your heirs wish to benefit from your estate after your passing, they can sell the property and keep the remaining equity. They can also can get their own mortgage. However, in keeping the home your heirs must pay the full balance due.
Medicaid may be affected, and you may not qualify for benefits unless you spend down your Reverse Mortgage proceeds each month. (Check with your attorney and Medicaid for info.)
How the FHA Reverse Mortgage Program Works
Mortgage Insurance Premium
One of the costs you will incur with a FHA reverse mortgage is a mortgage insurance premium. This pays for the mortgage insurance which guarantees that you will receive expected loan advances by guaranteeing the reverse mortgage with the lender. You can finance the mortgage insurance premium as part of your loan but it will reduced the net amount of cash that you can receive.
Third Party Charges
Closing costs incurred from third parties can include the appraisal fee, costs of the title search, insurance premiums, charges for any needed surveys, inspections charges, recording fees, mortgage taxes and the cost of an credit checks. Other fees may be incurred as deemed appropriate.
Origination Fee
Another fee you will pay is an origination fee. This compensates the lender for processing your Reverse Mortgage. A lender can charge a Reverse Mortgage origination fee of up to $2,500 if your home is valued at less than $125,000. If your home is valued at more than $125,000 the lender can charge 2% of the first $200,000 of your home’s value plus 1% of the amount over $200,000. Reverse Mortgage origination fees are capped at $6,000. These fees are usually negotiable between you and the lender.
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