Shop around when seeking a reverse mortgage
It seems like every year someone is asking me about reverse mortgages. This year, in particular, there is an abundance of advertising in the newspapers, television promos by aging actors and even street signs sprinkled all over town promoting the merits of reverse mortgages. Recently, on the same day, I received two separate mailings related to the virtues of a reverse mortgage. One was from my bank and the other was an offer of a free lunch if I attended their reverse mortgage seminar.
All of this activity sort of makes you wonder what’s going on in the banking industry. My guess is that lending institutions, after years of living on the edge, are looking for a sure thing, and senior citizens with equity in their homes are a pretty safe bet.
A reverse mortgage for those who are not clear on the definition, is a loan that enables homeowners 62 or older to convert part of the equity in their homes into tax free income without having to sell the home, give up title or take on a new mortgage. In addition, the proceeds from a reverse mortgage will not affect Social Security or Medicare benefits.
Generally the proceeds are disbursed in one of three ways or a combination of all three – a one time cash payment, monthly income or a line of credit. Closing costs and fees, including a home appraisal, are similar to an original mortgage process. These costs are built into the reverse mortgage proceeds so there is no out-of-pocket expense. Title to your property is retained by you, and the amount you owe can never exceed the value of your home.
If and when you decide to sell your home, the outstanding loan including interest and fees will be due, however, as long as you reside in and maintain the property, the reverse mortgage will be in effect. If your heirs inherit the property, the estate will repay the cash that was advanced from the reverse mortgage at the time of sale, plus interest and other fees to the lender and any remaining equity is paid at that time.
Homeowners may decide on a reverse mortgage in order to consolidate debt, pay off their existing mortgage, cover medical expenses or to enhance their retirement years. The concept that a reverse morgage is only for homeowners who find themselves in financial difficulties in their senior years is incorrect. It is simply another option for older homeowners to consider as part of their overall retirement plan.
Before deciding on a reverse mortgage, shop around just like you would if you were financing your home for the first time, Fees and rates can vary. Federal, independent government housing counselors are available to help you, and input from your attorney, accountant and, of course, family members is essential.
There is also plenty of online help and information available. Most lenders have details on their individual Web sites, and www.reversemortgage.org has a booklet that can be downloaded, as well as a reverse mortgage calculator. AARP (1-800-209-8085) and the U.S. Department of Housing & Urban Development (1-888-466-3487) can also field most of your questions.
You may still have a crush on Robert Wagner, but before you believe everything he says, do your due diligence. Make comparisons, get sound advice, attend a few seminars and enjoy your free lunch.