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Considering a Reverse Mortgage? Here are a Few Things to Consider

Reverse mortgages are more expensive and complex than regular loan (such as a home equity loan or other “standard” loan). Before you apply for a reverse mortgage, you need to know a few things.

Reverse mortgages can be expensive

Reverse mortgages have lots of fees, just for the application and approval process.  You may even need to pay some of these fees in cash (upfront).  Make sure to find out if your lender will let you pay some (or all) of the fees as part of the loan balance.  Also, be aware that interest, insurance and service charges will be added monthly to the loan balance. This raises the amount you need to pay the lender.

Evaluate your options before borrowing 
Make sure to consider all your options before signing the loan agreement for a reverse mortgage.  Do you have any options?  Are there any cheaper ways to get the money you need?  Can you take on a part time job?  Can you reduce your expenses?  Can you qualify for a home equity loan?  Check all the options.  If the answer is “no”, then a reverse mortgage is probably a great option for you.

Make sure the loan amount is big enough for your future needs

Read the loan agreement carefully to see exactly what you will receive.  Will it be enough for your full retirement expenses, or will you run out of money again in a few years?    And remember to factor in property taxes and insurance—with a reverse mortgage, you are still responsible for paying property taxes, insurances and maintenance of the home. 

Did you plan on leaving your home to your kids?

A reverse mortgage may not be right for you if you want to leave your home, free and clear, to your children or others who will inherit from you. Your relatives will not be able to inherit from you unless they pay off the loan after you have passed away.
 
Finally, watch out for scams!

Watch out for reverse mortgage scams.  Some senior homeowners have been contacted by firms offering to assist them in finding a lender that does reverse mortgages, in exchange for a “small percentage” of the loan. You don’t need their help.  You can get the information directly (and for free) from the Department of Housing and Urban Development (HUD) by calling toll-free, 1-888-466-3487.  Don’t pay for something you can get for free!

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