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Monday, July 1, 2013

SHOULD I GET A REVERSE MORTGAGE?

You are not sitting with this question alone. In these difficult times hundreds of thousands of Americans have seen their retirement nest eggs crash in value. Younger adults have time to reconfigure and recover before they will need those funds, but many retirees are scrambling to come up with money to pay the bills today. For those seniors who own their homes, the reverse mortgage is worth considering.

A reverse mortgage allows you, if you are 62 or older, to receive cash advances based on the equity in your home. This means a lump sum, monthly payments, or a line of credit depending on the terms of your loan. Generally, they are set up so you do not pay anything back until you sell your home, transfer title, leave your home for an extended period, move out or die.
If you have a spouse they can stay in the home after you die, but only if that spouse is also a listed borrower. If you do discover another income source (like, have you checked under the mattress?), there is no prepayment penalty. Also, there is no way to owe more than the value of your home with a reverse mortgage so, unlike a credit card or some other traditional loan, you won’t ever have to start paying a bill.

Another great aspect of reverse mortgages is that you can now incorporate one into the purchase of a new home. This is perfect for people who want to downsize or move closer to their relatives because it saves you from paying two sets of closing costs (one when you buy the home and another when you take out a reverse mortgage on the new home).  It’s a lesser known feature so spread the word.

Now, here is the small print: A reverse mortgage does not work for second homes or investment property. You have to live in the home. Also, you are still required to pony up for real estate taxes, HOA fees, utilities, and hazard and flood insurance premiums. And, although origination fees are capped by federal law, they do differ from bank to bank so it might pay to shop around a bit. The origination fee can be rolled into the loan, however.

In order to obtain a reverse mortgage you must go through a licensed lender AND get financial counseling. The lender is not allowed to accept your application for a reverse mortgage without a certificate showing you underwent counseling. Do not (and I say this with great affection for legitimate estate planners everywhere) use an unscrupulous estate planner to find a licensed lender. Anyone who charges you a fee for finding a lender is, to put it gently, scamming you and should be immediately bad-reviewed out of existence. AARP and the U.S. Department of Housing (HUD) both have free information on non-profit counseling agencies and approved lenders in your area. Also, if you signed for a reverse mortgage and regret the decision you have a right to cancel the loan within three days after closing. Be sure to check with your lender about the correct process, though, because they differ. We all know how much banks just adore creating their very own processes.

The National Counsel on Aging has a great guide on reverse mortgages as well as other options and considerations for elders that would like to stay in their homes here.

If you would like to get a quick figure to see how much your home is worth in a reverse mortgage check out the official reverse mortgage.org calculator.
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