A recent visitor wanted to know what my
take was on reverse mortgages? Although they can be beneficial for some consumers—it is normally best to pursue other options of obtaining cash.
In the past few years reverse mortgages have had some improvements due to federal regulations—however—for most—it is a dangerous product because most of those who get one—don’t fully understand what they are getting—and they usually don’t know the total ramifications—of the actions that they are taking with their home.
In this brief discussion I will try to shed light—so that you can at least make and informed and well thought out decision—prior to selecting a reverse mortgage—if you find yourself in the unfortunate position where you—must get a reverse mortgage!
A reverse mortgage allows you (you must be age 62 or older) to borrow against your home equity—and you can do that borrowing and take the loan as:
1) A lump sum
2) Lifetime payments
3) Or, a line of credit
The upfront fees are normally high—as you will normally have to pay mortgage insurance, closing costs and an origination fee—you will even have to pay these fees on a line of credit—that you may not even be tapping into.
Recent guidelines reduce the amount that you can borrow—and there are other mandatory requirements that the lender must perform that is intended to benefit you—and level the playing field some.
If you are considering a reverse mortgage you must understand fully what you are engaging in!
When I operated as a fee-only personal finance planner—reverse mortgages often came up during client engagements—fortunately none of my clients were in a position where they were “forced” to utilize a reverse mortgage because they had no other option.
Reverse mortgages can be beneficial to those who have planned poorly for their future—and they have no other means of obtaining needed funds!
A better approach is to plan effectively—or pursue other sources for your cash—such as tapping into the cash value of your life insurance policy, doing a traditional refinance—if possible—or cutting back on spending—if you are in position to do so.
With the line of credit option your credit line can’t be frozen as it possibly could be with a traditional line of credit—and if you don’t tap into the credit line with a reverse mortgage—the line grows based on the amount of interest that you would be charged.
Even so—it is in your best interest to avoid the line of credit option in particular—and the other two options (lump sum or lifetime payments) as well—generally speaking.
In addition, if you are seriously considering a reverse mortgage home loan you must be of the mindset that you will be staying there for a while.
If you have heirs or loved ones in which you plan on leaving your home to after your transition—they will be faced with a balance they they will have to pay off—or obtain another loan and pay off the property—if possible—if they—or you—desire that they keep the property in the family.
The key to avoiding the need for a reverse mortgage home loan is to get into a strong cash position during your earning years—so that you have the needed funds during your retirement years—so that you can live in abundance—and not have a need to seek reverse mortgages—or other adverse forms of obtaining cash.