Archive for the ‘Reverse Mortgage’ Category

Are Reverse Mortgages Really All They’re Cracked Up to Be?

Saturday, September 15th, 2018
Reverse mortgages

There are two sides to reverse mortgages. Educate yourself well on both sides before choosing to take out a reverse mortgage when you retire.

Like every story, reverse mortgages have two sides, good and bad, pros and cons, benefits and disadvantages.

What are Reverse Mortgages?

You’ve probably heard of reverse mortgages, but do you really know what it is?

According to reversemortgage.org, “A reverse mortgage is a loan available to homeowners, 62 years or older, that allows them to convert part of the equity in their homes into cash.

The product was conceived as a means to help retirees with limited income use the accumulated wealth in their homes to cover basic monthly living expenses and pay for health care. However, there is no restriction on how reverse mortgage proceeds can be used.

The loan is called a reverse mortgage because instead of making monthly payments to a lender, as with a traditional mortgage, the lender makes payments to the borrower.

The borrower is not required to pay back the loan until the home is sold or otherwise vacated.  As long as the borrower lives in the home, they aren’t required to make any monthly payments towards the loan balance. The borrower must remain current on property taxes, homeowners insurance, and homeowners association dues (if applicable).”

Why are Reverse Mortgages a Bad Idea?

Let’s address why reverse mortgages are a bad idea, or what about reverse mortgages some say is a bad idea. Here’s what contributor Marc Lichtenfeld had to say about reverse mortgages for  businessinsider.com in April 2018.

“Taking out a reverse mortgage is almost never a good idea — here’s why, basically:

  • Reverse mortgages are loans available to people over 62 who would like to borrow against the value of their homes.
  • They are often exorbitantly expensive — requiring additional premiums and fees.
  • Instead of interest compounding on a lower number every month, like a regular mortgage, reverse mortgages compound on a higher number because of the additional premiums.
  • In the case of death, your estate will have to pay off the remaining balance — and if you move out of the house, you have a year to close the loan.

In-Depth Reasons Why Reverse Mortgages are a Bad Idea

If a financial product needs a celebrity to convince you it’s a good idea, that’s a pretty good indication that it’s not.

Exorbitant Fees, Costs, and Mortgage Insurance Premiums

Reverse mortgages are exorbitantly expensive loans. Like a regular mortgage, you pay various fees and closing costs that total thousands of dollars. But unlike a regular mortgage, you pay a mortgage insurance premium.

You can avoid paying for mortgage insurance with a regular loan, provided your down payment is 20 percent or more of the purchase price. But since you don’t make a down payment on a reverse mortgage, you pay the premium on mortgage insurance.

The premium equals 0.5 percent if you take out a loan equal to 60 percent or less of the appraised value of the home. The premium jumps all the way up to an exorbitant 2.5 percent if the loan totals more than 60 percent of the home’s value.

For example, if your home appraises for $450,000 and you take out a $300,000 reverse mortgage, it will cost you an additional $7,500 on top of all of the other closing costs.

You’ll also get charged around $30 to $35 per month as a service fee. The total is charged based on your life expectancy. If you are expected to live another 10 years (120 months), you’ll be charged another $3,600 to $4,200. That figure is deducted from the amount you receive.

Most of the fees and expenses can be rolled into the loan, which means they compound over time.

The following distinction between a regular mortgage and reverse mortgage is important to note. When you make payments on a regular mortgage each month, you’re paying down interest and principal, reducing the amount you owe. Because you never pay down your reverse mortgage, the figure compounds month after month.

A regular mortgage compounds on a lower figure each month. A reverse mortgage compounds on a higher number.

When You Pass Away, Your Estate Gets Stuck

If you pass away, your estate pays back the loan with the proceeds from the sale of your house. If an heir is living or wants to live in the house, they’ll have to pay back the reverse mortgage or sell the home.

When You Choose to Move Out of Your Home

If you decide to move out of the home, you have a year to close the loan.

And what if you move into a nursing home? You’ll probably need the equity in your home to pay for the cost of living there. In 2016, the average cost of a nursing home was $81,128 per year for a semi-private room. If you owe a lender a substantial piece of the equity in your home, there won’t be much left to pay for living in a nursing home. Unless your kids step up to pay for it since you can’t, you’re going to a Medicaid facility. And having to live in a Medicaid facility isn’t the least bit ideal.

After All That …

Because of the high costs of reverse mortgages, it’s safe to say they aren’t worth it for most people. You’re better off selling your home and moving into a cheaper place. Keep whatever equity you get from your home and pocket it. This is far better than owing it to a reverse mortgage lender.”

Do you have questions about reverse mortgages? Contact Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate. Call (718) 253-9600 ext.206 or email [email protected] with your questions today.


Brooklyn Real Estate Agent

 Charles D’Alessandro

Your Brooklyn Real Estate Agent

718-253-9600 ext. 206

[email protected]

The 2 Sides Of A Reverse Mortgage

Friday, May 15th, 2015
Reverse mortgage

A reverse mortgage has 2 sides: Benefits and Drawbacks

Like every story, a reverse mortgage has two sides, good and bad, pros and cons, benefits and disadvantages.

You’ve probably heard of a reverse mortgage, but do you really know what it is? A reverse mortgage is a Home Equity Conversion Mortgage, a (HECM), is a type of home loan for senior homeowners, 62 years or older, that uses the home’s equity as collateral. Cash payments are paid to a senior homeowner based on their home’s equity. A reverse mortgage provides cash payments to a senior homeowner by allowing them to convert part of the equity in their home into cash. Generally, the loan is not due until the last surviving homeowner dies, sells or moves out of the home. The homeowner is responsible for property taxes, homeowners insurance, upkeep, and any relevant condominium fees.

When the last surviving homeowner dies, sells or moves out of the home, the estate must pay off the reverse mortgage or sell the home to pay back the loan balance. The estate has roughly 6 months to do so. If there is any remaining equity, the estate inherits the remainder. If the home sells for less than the balance of the reverse mortgage, the estate is not personally liable.

The idea for a reverse mortgage came about because retired senior homeowners with limited incomes needed a way to pay for healthcare and monthly living expenses. Thus, the reverse mortgage was created and without restriction on how it would be used by the senior homeowner. It allows senior homeowners to use the equity they have built in their homes to help them pay for health care costs and their basic monthly living expenses or take a vacation if they so choose.

A reverse mortgage differs from a traditional mortgage because the lender pays the homeowner cash rather than homeowner making monthly mortgage payments.

A reverse mortgage can be a good way for retired homeowners to increase their spending power and financial security in retirement. However, there are 2 sides to reverse mortgages, benefits, and drawbacks.

Benefits of a Reverse Mortgage:

  • You can live in your home for as long as you want without a monthly mortgage payment and improve your immediate financial situation.
  • You can tailor and utilize the reverse mortgage as a financial planning tool.
  • Your home cannot be taken from you for non-payment as in a home equity loan. You do not make payments on the loan until you permanently leave the home.
  • You will never owe more than the value of your home at the time the loan is paid off. This is a great advantage if you secure a reverse mortgage and then the price of your home drops.
  • Whether you receive the money from a reverse mortgage as fixed income or in a lump sum, the money is typically tax-free.
  • You may use the money from a reverse mortgage however you see fit.
  • You can receive the money from a reverse mortgage in one lump sum, as an annuity, a credit line or even as a combination of these.
  • You maintain homeownership of your home and are able to live in your home.
  • You can rest assured that you have a place to live for as long as you want when you secure a reverse mortgage.
  • A reverse mortgage is federally insured.
  • A reverse mortgage can increase your spending power and financial security in many ways.

Drawbacks of a Reverse Mortgage:

  • Upfront fees on a reverse mortgage are high. (Learn more about reverse mortgage fees here: Reverse mortgage rates and fees)
  • Even though you make no monthly payments on a reverse mortgage, the amount of interest you owe and the amount you must eventually pay back accumulates over time.
  • You may have built a lot of equity in your home, but a reverse mortgage might allow you to use only some of it. The amount of your reverse mortgage loan is determined by the appraised value of your home, what you still owe on your home, your age and what the current interest rates happen to be.
  • A reverse mortgage is the opposite of a traditional home loan. It is a mortgage in reverse. You accumulate the loan over time and pay it all back when you are no longer living in your home. This can be difficult to grasp.

The benefits of a reverse mortgage clearly outnumber the drawbacks, but a reverse mortgage is not for everyone. Here are three things to consider before securing a reverse mortgage:

  • If you are eligible for low-income assistance, securing a reverse mortgage could disqualify you from Federal or State government assistance.
  • If you are planning to move in the near future, a reverse mortgage is not a good idea since the loan is due when “the last surviving homeowner dies, sells or moves out of the home.”
  • A reverse mortgage decreases the equity in your home and affects your estate. (See Innovative Uses of a Reverse Mortgage for more information on these options)

Studies have shown that more than 90 percent of those who have secured a reverse mortgage have less stress and the freedom to choose to live the life they want to live. Learn more about the fees associated with a reverse mortgage or instantly estimate your reverse mortgage loan amount with the Reverse Mortgage Calculator.

Brooklyn real estate agent with Fillmore Real Estate, I have been collaborating with and helping my clients buy or sell their Brooklyn homes for over 27 years. Do you have further questions about a reverse mortgage? Contact me, Charles D’Alessandro, at (718) 253-9600 ext 206 or email [email protected]. I know real estate and will be happy to answer any questions you may have. Just ask!

Resources:

http://www.newretirement.com/reverse-mortgage/reverse-mortgage-disadvantages-advantages.aspx?nr_product=revmort&nr_a=LI_BidManager&nr_placement=&nr_medium=display&nr_creative=rmdown_blkwhteleg&nr_size=LREC&nr_campaign=StandardCPMV2&nr_adgroup=Desktop&nr_adtype=STTC&utm_medium=display&utm_source=LI_BidManager&utm_content=rmdown_blkwhteleg

http://www.reversemortgage.org/about.aspx