Reverse Mortgage: Rip-Off or Money
Saver?
A reverse
mortgage is a loan that pays you, rather than you paying
into it.
You may choose to receive either a lump sum, monthly
payments, or a combination of the two. Or, you can set up a
credit line, which can be handy for emergencies, personal
use, or even to purchase a vacation home.
If you choose monthly payments, the checks will never stop,
as long as you live in the home. Even if you outlive your
equity, you are guaranteed to keep receiving the monthly
checks. Yes, the bank would lose money in a case like that;
but don't worry about the bank too much. Like insurance
companies who pay out in the case of a fire or other
mishap, they come out ahead overall.
What's
the Catch?
Along with the
money you receive, there is a profit built in for the bank,
in the form of a low interest rate. It is usually an
adjustable rate. Both your monthly check and the bank's
profit are subtracted from your equity. When you sell the
home, move out, or upon your passing, the amount owed is
subtracted from the profit you or your heirs will receive.
The other "catch" is that there are up-front fees and
closing costs, which are also deducted from your future
equity. Typically, you don't pay for any fees or costs out
of pocket, except for the appraisal and the required
housing counseling (your loan officer will set you up
with).
When
It's a Money Saver
If you plan to stay in your home a long time, a reverse
mortgage can be more than just a good deal -- it can be a
goodsend. In addition to providing you with money to live
on, it pays off your existing mortgage and can be used to
get much-needed repairs done on your home.
In other words, a reverse mortgage can get rid of your
current mortgage payment, fix up your bathroom, and pay you
additional cash every month to live on.
When
It's a Rip-Off
If you plan to
sell and downsize or move into a retirement community
within two years, the up-front cost of a reverse mortgage
is not worth it.
More Information
If you'd like
more information about how a reverse mortgage might benefit
you, whether or not you qualify, and how much money you
could get, I would like to recommend reverse mortgage
experts Rick Cashman and Ed O'Connor.
Contact the
Experts