Research Required for Reverse Mortgages

Reverse mortgages are sophisticated lending instruments. A very thorough study of your options should be completed prior to signing any contract. When you begin to do your research, consider the source of the information carefully. A lender who is selling reverse mortgages for business profit will give you the positive side to consider. Make sure you also consult government and consumer protection sources. If there is a cheaper or better option for you, take it. The following questions may help you flush out some important information hidden just below the surface.

 

• Could your home produce income for you without taking out a loan? Be open to other possibilities. Could you live somewhere cheaper and rent the house for income? Could you remain in the house and rent a room for income? If you sold the house and invested the money wisely, how much income might you expect?

 

 

• Would you qualify for a conventional mortgage or home equity loan? If you are still working, receiving a regular source of income from Social Security or pension, or have some other income source, you may qualify for a conventional mortgage or home equity loan. Ask a mortgage lender if you might qualify for a less expensive type of loan. Compare different loan options side by side.

 

 

• Do you understand all of the upfront costs and the costs over time? Reverse mortgage loans are much more expensive than a conventional mortgage or home equity loan. It does not make much sense to consider a Reverse Mortgage as a short term fix to an income problem. Carefully consider all of the costs associated with this type of loan.

 

 

• What costs will you have in addition to the loan itself? Normally, you are still going to be responsible for property taxes, homeowners' insurance, and maintenance associated with your home. In fact, failure to take care of the home or pay its taxes and insurance can get you foreclosed on.

 

 

• How long does the reverse mortgage lender expect you to live? You might as well ask the most gruesome questions right up front. Lending money is a for-profit business. Make no mistake about it, the reverse mortgage lender expects to make a significant amount of money in exchange for any benefits you may receive. The basic formula used to determine how much money you will receive is going to include a factor on how long the bank thinks you will live.

 

 

• How long do you hope to remain in the property? The longer you live in the property, the more interest you will pay on any balance owed. Conversely, you need to remain in the property for several years just to justify the upfront fees.

 

 

• What happens to your ownership interest in the property? If your home is currently owned free and clear, chances are you have spent many many years getting to this point. You may already have paid a significant amount in interest paying off a purchase money loan for the home. Consider carefully what happens to the title of your property should you take out a reverse mortgage.

 

 

• How will a Reverse Mortgage effect your plans for your estate after you pass? Consider how your estate will be effected upon your death. If you intend to leave an inheritance to your family or favorite charity, the reverse mortgage may significantly effect the plans you've made for your estate.

 

 

• If you live longer than the home is able to support you, do you have a second plan? You are able to apply for a reverse mortgage at the age of sixty-two years old. However, the older that you are when you start taking money from the home, the more money you are eligible to take.

 

 

• What will you do with the money? This is often thought to be one of the most important and telling questions you can ask yourself. Be brutally honest. Payments to you from a reverse mortgage lender can be used for anything you want--to enhance your lifestyle, improve your home, or provide a cushion in case of emergencies. However, you probably don't want to blow the whole thing on a fabulous vacation and have nothing left for necessities that may come up.