With all the hoopla going around concerning the reverse mortgage for senior program in the U.S., you would think it is the next great salvation for senior citizens on fixed revenue. Just before we jump to that conclusion, let’s investigate some of the pro’s and con’s of reverse mortgages.
Advantages and Benefits
The extremely best thing that happens as a result of acquiring a Reverse Mortgage for Seniors will be the improvement that it might make within your monthly cash flow. Whenever you get a reverse mortgage, the current mortgage in your house, if there’s one, is completely paid off and thus your obligation to make monthly payments goes away and, instead, you’ll receive a monthly check from the reverse mortgage lender for as long as you live in the house! For most seniors, that alone will make a huge improvement to their monthly cash flow budget. Let’s say, for example, you have a $500 mortgage payment each month. Using the reverse mortgage, that would go away and also you could have a $400 check added to your income each month. That net difference of $900 per month can mean a great deal to the typical senior citizen’s budget!Because most Reverse Mortgages are insured by the Federal government through HUD, the monthly checks to you are guaranteed even when you lender were to go out of business or if you were to outlive the term of one’s mortgage.Other seniors may be getting a reverse mortgage to deal with an unexpected financial obligation, like a huge medical bill or nursing home payment. In that case, they would nonetheless get rid of their current mortgage (and payment), but would receive the reverse mortgage proceeds inside a lump sum payment or a line of credit instead of monthly payments. Whenever you apply for a reverse mortgage, these disbursement methods are optional to you and also you may even mix them to obtain a little lump sum to cover a bill and take the remainder in the form of monthly payments.
Disadvantages
As the old saying goes, “There are no totally free lunches!” The downside of a reverse mortgage is that you’re living off of the equity inside your house. When you move out of your home or pass on, the reverse mortgage will have to be paid off, so this indicates the house will most likely have to be sold. The amount that you plan on leaving to your heirs will necessarily be decreased.You will find significant expenses (appraisal fees, loan origination fees, surveys, etc, etc.) associated with acquiring a reverse mortgage. Due to this, a reverse mortgage is not something which should be entered into casually. You need to plan on living in the home for at least 5 years to make the extra reverse mortgage expenses worthwhile.Having a reverse mortgage, there is a requirement to buy Reverse Mortgage insurance coverage from HUD each year. This is to safeguard you from problems using the lender’s liquidity and to cover your payments should you outlive the mortgage.To safeguard you from becoming scammed or ‘ripped off’ by unscrupulous crooks, the government also demands you must obtain credit counseling prior to embarking on a reverse mortgage.
Generally this requires the form of an AARP counseling session that’s free of charge and helps educate you on reverse mortgages as well as assists you figure out whether or not a reverse mortgage is right for your specific financial situation.The Need for HomeworkThe Reverse Mortgage for Seniors program might be a windfall to you or it might be completely wrong for you to consider. Be sure to do your homework, take your time, and get good advice from an independent source that will not get any money from your choice to get a reverse mortgage. Remember the Rule of the Barbershop – “Don’t ask the barber if you need a haircut; you are sure to get clipped!”
