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.
The most effective option however, is proper planning on the front end—early in your life stage!
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.
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About This Article:
The above article was written by Thomas (TJ) Underwood. Thomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia.
He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and Managing & Improving Your Credit & Finances for this MILLENNIUM.
In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.
He is the creator of TheWealthIncreaser.com where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner.
He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind" and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.
You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page. You can also get highly relevant tips on "living your life more abundantly" and link to TheWealthIncreaser.com and possibly earn revenue by logging on to TheWealthIncreaser.com.
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