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Reverse Mortgage - Be Sure You Need It Before Applying For
One
Reverse mortgages used to be considered the last resort of
desperate retirees who needed to borrow against their home equity
in order to pay for medical expenses. With home prices across the
country rising at astonishing rates, more and more retirees, aged
62 and over, are taking out reverse mortgages to fund better
retirement living. A reverse mortgage works more or less the
opposite way from a conventional mortgage; the borrower receives
payments from the lender in the form of a lump sum, a line of
credit, or monthly payments. The amount borrowed constitutes a
lien against the home must be repaid upon the death of the
borrower, or when the home is resold. There are costs associated
with a reverse mortgage, however, and potential borrowers should
be aware of these when considering taking out such a loan,
particularly if the borrower takes out a line of credit.
All loans have fees associated with them. There are home
appraisals, paperwork fees, mortgage insurance fees, and
additional "points" added to the cost of the loan. In general,
the costs of taking out a reverse mortgage are higher than those
associated with a traditional mortgage. There are several reasons
for this, including the fact that the time period for receiving
repayment of the loan is indefinite, typically depending on how
long the borrower lives. This uncertainty is added into the loan
in the form of additional fees.
Most people who take out a reverse mortgage opt to take their
funds in the form of a line of credit, rather than a lump sum or
monthly payments. There are advantages to a line of credit, which
allows the borrower to use the funds by simply writing checks
against the loan. The primary advantage is that the borrower only
uses the funds when he or she needs them. Because of this,
interest only accrues on the money if the borrower actually
writes checks. Borrowers should be aware, however, that the costs
of the loan, which can be substantial, apply even if the borrower
doesn't write any checks against the loan. If the homeowner takes
out a line of credit and decides to sell the home shortly
thereafter without ever having written a check against the loan,
the borrower will not owe the lender any interest or principal,
but the borrower will lose the money paid for the cost of the
loan, which is not refundable. If the borrower rolled the costs
into the loan itself, they could owe payments even if they never
wrote a check.
In short, borrowers considering taking out a reverse mortgage
should make sure that they plan to stay in their home for quite
some time and that they actually need the money from such a loan.
A reverse mortgage is a great idea for those who have a specific
purpose or use in mind, but as an emergency source of "rainy day"
funds, it can be an expensive choice.
©Copyright 2005 by Retro Marketing. Charles Essmeier is
the owner of Retro Marketing, a firm devoted to informational
Websites, including End-Your-Debt.com, a Website devoted to
debt
consolidation information and HomeEquityHelp.net, a site
devoted to information on home equity loans.
 MORE RESOURCES updated Thu. February / 09 / 2012
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New HARP Could Help Up to 6.7 MillionNASDAQOther changes to the program were designed to make it easier for homeowners with private mortgage insurance (PMI) to refinance or to obtain a HARP mortgage refinance with a lender other than their current mortgage servicer. In addition, new limits were ...and more » |
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