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The Pros And Cons Of A Reverse Mortgage Staff - Mortgage Lenders Plus.com

As the retirement population in this country swells, many of the newly added retirees are carrying limited pensions with them and Social Security benefits that have been reduced to insignificance by the program’s failure to keep pace with inflation. One of the mechanisms that has become increasingly popular as a retirement funding source is the reverse mortgage loan.

Any senior over the age of 62 who owns a home can seek out a reverse mortgage loan. These packages provide cash to the homeowner who, presumably, has accumulated a few decades’ worth of equity. The money can be provided as monthly stipends, in a lump sum, or as a line of credit. As with ARMs, the mortgage landscape is littered with reverse mortgage schemes. And as with people in danger of default, the senior home owner population is seen as a vulnerable target population by unscrupulous reverse mortgage brokers.

One of the reliable sources on reverse mortgage loans in general is the AARP. They can also provide advice on what sort of reverse mortgage broker to avoid. HUD also provides advice and counsel on reverse mortgages; any HUD backed reverse mortgage must be preceded by a counseling session involving HUD professionals and the potential borrowers.

The terms of a reverse mortgage loan are that the money loaned does not have to be repaid until the borrower dies or sells the home. At its best, a reverse mortgage provides a retired household to utilize their home equity for whatever unexpected needs arise in their final years. Because of the extended life expectancy in this country, many seniors are finding their reverse mortgage loans providing the wherewithal for long term care that would not have otherwise been possible.

The down side to a reverse mortgage loan is that, for many seniors, their principal legacy is their home. Cashing out the home equity in their senior years leaves little behind for their heirs. Many heirs would probably make the case that investment in long term care for their parents is a far preferable option to that care being provided by one or more of the adult children.

The other red flag that seems to be frequently sited with regard to reverse mortgage loans is the fly-by-night reverse mortgage broker. “Cash for your home!” is a frequent advertisement in neighborhood weeklies and on telephone pole signs. Perhaps the first rule of reverse mortgage loan shopping is don’t call any broker with an 800 number. Seek counsel on these loans: from a banker you know and trust; from your accountant; from the AARP or from an FHA or HUD counselor. About ninety five percent of the reverse mortgage loans granted are insured by a federal agency, so honest guidance is not far away.

These reverse mortgage loans aren’t cheap. There is a two percent origination fee and an additional two percent (of the home’s value) that goes as an insurance premium. There will be an appraisal cost and occasionally an application fee. The interest rate structure is set by statute and cannot vary by home mortgage lender. But because the cost structure for the loans is basically the same across the board, don’t listen to the reverse mortgage broker who promises reduced interest rates in return for a “slightly” higher application fee.