Take a Look at the Reverse Mortgage Pros and Cons
Let’s face it. There is good and bad in everything that we do. The real question is: does the good outweigh the bad? We are going to take a look at what is the real story. Are reverse mortgages good or bad? We will start with the “bad” points.
Reverse mortgage cons:
1. Mortgage Insurance – All FHA loans have mortgage insurance, regardless of how much equity you have available. In the case of a reverse mortgage, it is for in the event the balance of your loan exceeds the amount your home is worth. This only applies when it is time to sell your home and is usually in the event that property values decline. Remember, even if you use up all your equity, you will never be kicked out of your home. Because of the Mortgage Insurance, you and your heirs will never owe more than your home is worth. That is what you are paying for.
2. Compound Interest – Everyone likes to earn it, no one likes to pay it. Simply defined it is interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. If you ever had a savings account or investment that you rolled the earnings back into, you have likely earned it. See an example of compound interest.
3. Borrowing against your heirs inheritance - Some will say that you’re spending their inheritance. Who’s money is it? I say, if you need it, you use it. Leave whatever is remaining to the heirs and not a penny more. No one is suggesting you waste the money, but use what you need to be comfortable.
Reverse mortgage pros:
1. Maintain your independence – What could be more embarrassing than asking your kids for financial help to cover monthly expenses? Would you like to need to move in with your kids? You can use your home’s equity to make ends meet and keep your dignity.
2. Keep your home – Have you recently thought of moving? How painful of an idea is that? A reverse mortgage will allow you the financial edge to be able to keep your home while affording the retirement you deserve.
3. Life becomes affordable – So many seniors live in an impoverished state. They have gotten used to being broke. A reverse mortgage can allow you the access to your equity and turn it into a lifetime income stream. What if you could get $200 or $400 or even more every month? You would probably feel like you won the lottery.
4. No mortgage payments – There are no monthly payments and you don’t have to pay back the loan as long as you maintain the home as your primary residence. This can really be helpful when times are tough.
You might wonder why the fees weren't mentioned in the reverse mortgage pros and cons. The reason is that the fees are no longer relevant. There are many programs that have cut the reverse mortgage fees in half or more. In most cases, you shouldn't have to pay origination fees and you might even get a significant credit on your mortgage insurance fees.
Before we summarize, let me admit something. Yes, I am a Loan Officer. But I truly believe reverse mortgages are a great tool that can help a lot of people. I am not saying they are for everyone. But when someone says they are bad, I just cringe. Tools aren't bad, it’s how you use them. If the equity in your home is the only money you have, what is wrong with using it to make life livable? Take a look at the article "Bad Advice from Good People" for some in depth consideration on who to get advice from.
It’s your turn to decide. Does this tool help you? Will it enhance your life? If you need more reverse mortgage information that is free and no obligation, visit our web site and read up. We have a reverse mortgage blog and several reverse mortgage articles that will help you learn all you need to know.
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