Should You Pay Off A Reverse Mortgage?
January 19th, 2009
- HELOC vs. Reverse Mortgage
- Which Reverse Mortgage Payment Plan is Right For You?
- Reverse Mortgage vs. Refinancing
- Reverse mortgages vs. home equity loans
- How Much Money Can I Receive from a Reverse Mortgage?
We usually think of reverse mortgages as debt that will never be repaid, but that is not necessarily the case.
For instance, the Los Angeles Times reports that one couple with a $62,000 reverse mortgage is seeking to reduce the debt if not pay it off.
While reverse mortgages are sometimes thought of as financing which will never be repaid by the borrowers, that’s not necessarily the case. There’s no reason why borrowers so inclined cannot repay the debt.
But would any borrowers be inclined?
Actually, there may well be good reasons to repay a reverse mortgage. For instance, imagine that you have a reverse mortgage line of credit. You tap into it now and again when cash is needed, but the actual debt is not large relative to your income and assets. It can then make sense to pay off the outstanding balance to remove claims against your property and estate.
In other words, just like a “forward” home equity line of credit (HELOC) there is no reason why a reverse mortgage can’t be obtained with the expectation of repayment.
To some extent the reverse mortgage line of credit may be a “better” deal when compared with a forward HELOC in the sense that a monthly repayment is not required. However, this needs to be carefully thought out because not making a payment means that the size of the reverse mortgage debt will grow as interest is added to the amount outstanding.
Another advantage with the reverse mortgage line of credit is that such an extension of financing is not based on your income or employment. Instead you need to be age 62 and above and you need to have equity in your prime residence to support the loan. That’s about it because reverse mortgage “qualifying” is less about borrowers and more about asset values.
There are, however, several caveats:
___ A reverse mortgage is debt.
___ There are up-front fees to be paid when setting up a reverse mortgage.
___ The size of the debt will grow if payments are not made.
___ Not making payments can be attractive in terms of holding down cash costs.
___ While you may plan on paying down or paying off your reverse mortgage, plans can change.
___ There is no “penalty” in the form of foreclosure or dinged credit if you don’t pay back a reverse mortgage on a monthly basis or with an occasional payment — you have a right with reverse financing not to make payments, that’s part of the way such loans are engineered.
As with any decision regarding reverse mortgages, first speak with an attorney who specializes in elder law or a fee-only financial planner who is familiar with senior issues. Also ask trusted family and friends.