Reverse Mortgages, When Your House Pays You Back?

November 4th, 2009

A Reverse Mortgage is when your house pays you back, or that is how the commercial goes. But at what cost? And is it worth it?

I have been doing some more research on these Reverse Mortgages (RM). I have been trying to condense 80 pages of data down into something manageable. Here are a few important notes I came up with:

-You have to be 62 years of age or older.

-You have to own your home free and clear, or have a relatively low mortgage.

-You may have to attend a consumer education session.

-It seems most of the interest rates charged are charged at variable loan rates over the life of the loan, although there are some fixed rate loan products.

-The costs can be heavy, as much as 5% in closing costs! (this is more than the closing costs to “buy” a home).

-They say the best reason to take a RM is when you are going to take a large sum of principal up front, or you plan to take monthly withdrawals over a very long period of time. So you need to make sure that this is a home you plan to stay in for a long time, maybe forever. You can take the loan as a line of credit, a lump sum, or monthly withdrawals.

-I think taking out a RM needs to be an absolute financial necessity, otherwise, you are only taking away from your estate and your heirs, unless that is not important to you.

After learning more about this, I am not so sure I like it. You really have to be in financial need. It’s almost like taking out an equity line against the equity in your property, but they put some fancy name on it called “Reverse Mortgage”. And I would never stick myself with being subject to the winds of change in the interest-rate markets as I get older (unless you find a good fixed rate RM).

I think the best plan of attack for some people instead of getting a RM, as much as you may not want to hear it, would be to sell the place, realize the large again, and then rollover the gain into a smaller and more manageable home as you get older. Or if you need it, roll over the proceeds into the purchase of a place in an assisted living facility. You will have achieved two things in doing that. One, you will have downsized to a smaller physical space, which I really think we all need to do as we get older. Two, if you realize the large profit that should be coming from the sale of that place, you may be able to go out and pay cash for a smaller place. If you do not realize enough to pay cash for a smaller place, it will at least be enough to pay for most of a new place.

The above is my two cents anyway, let me know what you think after doing your own research. Feel free to contact me off of this website with questions or comments.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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