With all of the hoopla going around about the reverse mortgage for senior program in the U.S., you would think it is the next great salvation for senior citizens on fixed income. Before we jump to that conclusion, let's investigate some of the pro's and con's of reverse mortgages.
Advantages and Benefits
The very best thing that happens as a result of getting a Reverse Mortgage for Seniors is the improvement that it might make in your monthly cash flow. When you get a reverse mortgage, the current mortgage on your home, if there is one, is completely paid off and thus your obligation to make monthly payments goes away and, instead, you will receive a monthly check from the reverse mortgage lender for asa 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. With the reverse mortgage, that would go away and you could have a $400 check added to your income each month. That net difference of $900 per month can mean a lot to the typical senior citizen's budget!
Since most Reverse Mortgages are insured by the Federal government through HUD, the monthly checks to you are guaranteed even if you lender were to go out of business or if you were to outlive the term of your mortgage.
Other seniors may be getting a reverse mortgage to handle an unexpected financial obligation, like a huge medical bill or nursing home payment. In that case, they would still eliminate their existing mortgage (and payment), but would receive the reverse mortgage proceeds in a lump sum payment or a line of credit instead of monthly payments. When you apply for a reverse mortgage, these disbursement methods are optional to you and you may even mix them to get a small 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 free lunches!" The downside of a reverse mortgage is that you are living off of the equity in your home. When you move out of your home or pass on, the reverse mortgage will have to be paid off, so this means the home will likely have to be sold. The amount that you plan on leaving to your heirs will necessarily be reduced.
There are significant costs (appraisal fees, loan origination fees, surveys, etc, etc.) associated with obtaining a reverse mortgage. Because of this, a reverse mortgage is not something which should be entered into casually. You should plan on living in the home for at least five years to make the additional reverse mortgage costs worthwhile.
With a reverse mortgage, there is a requirement to purchase Reverse Mortgage insurance from HUD each year. This is to protect you from problems with the lender's liquidity and to cover your payments should you outlive the mortgage.
To protect you from being scammed or 'ripped off' by unscrupulous crooks, the government also requires you to obtain credit counseling before embarking on a reverse mortgage. Usually this takes the form of an AARP counseling session that is free of charge and helps educate you on reverse mortgages as well as helps you determine whether or not a reverse mortgage is right for your particular financial situation.
The Need for Homework
The Reverse Mortgage for Seniors program may be a windfall to you or it could 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 decision 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!"
Advantages and Benefits
The very best thing that happens as a result of getting a Reverse Mortgage for Seniors is the improvement that it might make in your monthly cash flow. When you get a reverse mortgage, the current mortgage on your home, if there is one, is completely paid off and thus your obligation to make monthly payments goes away and, instead, you will receive a monthly check from the reverse mortgage lender for asa 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. With the reverse mortgage, that would go away and you could have a $400 check added to your income each month. That net difference of $900 per month can mean a lot to the typical senior citizen's budget!
Since most Reverse Mortgages are insured by the Federal government through HUD, the monthly checks to you are guaranteed even if you lender were to go out of business or if you were to outlive the term of your mortgage.
Other seniors may be getting a reverse mortgage to handle an unexpected financial obligation, like a huge medical bill or nursing home payment. In that case, they would still eliminate their existing mortgage (and payment), but would receive the reverse mortgage proceeds in a lump sum payment or a line of credit instead of monthly payments. When you apply for a reverse mortgage, these disbursement methods are optional to you and you may even mix them to get a small 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 free lunches!" The downside of a reverse mortgage is that you are living off of the equity in your home. When you move out of your home or pass on, the reverse mortgage will have to be paid off, so this means the home will likely have to be sold. The amount that you plan on leaving to your heirs will necessarily be reduced.
There are significant costs (appraisal fees, loan origination fees, surveys, etc, etc.) associated with obtaining a reverse mortgage. Because of this, a reverse mortgage is not something which should be entered into casually. You should plan on living in the home for at least five years to make the additional reverse mortgage costs worthwhile.
With a reverse mortgage, there is a requirement to purchase Reverse Mortgage insurance from HUD each year. This is to protect you from problems with the lender's liquidity and to cover your payments should you outlive the mortgage.
To protect you from being scammed or 'ripped off' by unscrupulous crooks, the government also requires you to obtain credit counseling before embarking on a reverse mortgage. Usually this takes the form of an AARP counseling session that is free of charge and helps educate you on reverse mortgages as well as helps you determine whether or not a reverse mortgage is right for your particular financial situation.
The Need for Homework
The Reverse Mortgage for Seniors program may be a windfall to you or it could 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 decision 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!"
