April 18, 2010
Reverse Mortgages: Pros and Cons
Reverse Mortgages: Pros and Cons
If you own a home but are struggling to make ends meet, a reverse mortgage might be one way to boost your financial security. However, it’s important to investigate the pros and cons fully – and to seek out a qualified, professional financial adviser or institution to help you make the right decision.
These loans are highly regulated, and each customer must attend a counseling session from a federally approved agency.
The reverse mortgage enables older homeowners to convert part of the equity in their homes into cash. Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you.
To qualify, borrowers must be at least 62 and own and live in the home as their principal residence.
The best thing about a reverse mortgage is the ability to access equity with no mortgage payments. It’s ideally for people who want to stay in their home. Someone who’s going to sell their home in the next year or so should not be looking at a reverse mortgage.
The amount received through a reverse mortgage is based on your age, the value of the home and the current interest rate.
Proceeds can be received as a lump sum, equal monthly payments for a specified time period, or as a line of credit to draw down whenever you want.
The lender is usually repaid when the home is sold or the borrower dies.
But find out about fees and other potential costs.
Reverse mortgages have high closing costs, typically about twice as high as a normal mortgage. They have adjustable interest rates as well.
Having that large cash balance on hand may affect eligibility for other forms of aid, such as Medicaid, so again, before taking the plunge and going for a reverse mortgage, get all the facts!
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