If you watch television, you have likely seen commercials for a number of different financial institutions promoting reverse mortgages. The idea of living in your home and having it pay you is appealing to some. Others fear they will be letting go of their last physical asset and, ultimately, the last bit of security in life. Who is right?
A reverse mortgage offers people 62 and over a way to turn the equity in their home into money that can be used to cover living expenses. Rather than writing a check to the bank every month, homeowners can receive payments monthly, a credit line or a single lump sum. This may seem attractive to some, because investment markets are still well below previous highs, particularly for those owning their homes outright.
Obviously, the higher the home's value and the more equity one has in the property will determine how much money can be obtained by going with a reverse mortgage. Because, this is in actuality a loan against the hou se, when the borrower vacates the premises for any reasons the loan is due and payable in full.
Let's say a married couple lives in the family home and one dies, the other may want to move into an apartment or senior facility. Another scenario is that the last survivor dies, assuming both were listed as borrowers. In either case, the survivor or the heirs must sell the house and payoff the balance, with interest. Anything left is theirs to keep. However, during the life of the loan, the borrower must be current on payments for property taxes and homeowner's insurance.
In the past, reverse mortgages have been considered expense due to high closing fees, but some of the major funders have reduced these up front costs by thousands of dollars. Service fees have also been slashed. This was done as a necessity since the conversion market is down from last year.
A primary reason for market slowdown is the decrease in property values, which resulted in lower loan v alues. Also, the Housing and Urban Development agency (HUD) reduced t he amount of money borrowers could receive by 10%. These factors caused many consumers to walk away from the possibility of such loans, at least until the housing market experiences a significant upswing.
Current interest rates on a fixed reverse mortgage loan are about 5% and the borrower must commit to the full loan at time of signing and pay interest on that amount over the life of the loan. For those not needing a large sum of money up front an adjustable rate loan may be better, since rates are right now at about 2%.
Before making major decisions of this kind, counseling is advised. So seek help from family members, as well as financial advisors and read the information available through HUD and senior groups. Only then can you decide if a reverse mortgage is right for you.
Don Potter, a Philadelphia native, was born in 1936 and is a 50 year veteran of the advertising agency business. Now living in Los Angeles, he has written two novels in retirement, frequently writes on marketing issues, and has a blog dedicated to pre-boomers (those born between 1930 and 1945).
Read more articles for and about pre-boomers with thoughts, comments and opinions designed to spark thinking, foster discussion, and stimulate debate by logging on to http://www.pre-boomermusings.com
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