It is critical that you understand the advantages and disadvantages of a reverse mortgage in order to make the best decision for your situation.

I spoke with a couple just the other day who are facing a difficult dilemma. Apparently they had secured a reverse mortgage from another individual just a couple of years ago and now they are realizing that it may not have been the best strategy for them. It seems that they now realize that their home is no longer suitable for their needs. It’s a multi-story and, due to health problems, they really need everything on one level — a ranch configuration would be much better.

They took out the maximum loan at the time, and if they didn’t need to move out of their current home, there would not have been a problem. The challenge is the depressed real estate market in the Metro-Denver area. After some research, they discovered that their home value had declined significantly. So much so that they are in a zero equity position. To make matters worse, their cash flow situation is not very good. Because of their cash flow issues, the fact that their reverse mortgage is rather new, and their inability to sell their home — they are in a very difficult situation. There may be light at the end of that tunnel, nevertheless. Since a reverse mortgage is a non-recourse loan, they will never owe more than the actual value of their home. Should they decide to sell their home and if it sells for less than their current loan balance, the mortgage insurance (required on all HUD reverse mortgages) will have to make up the difference — protecting the home owners from further financial damage.

So, are reverse mortgages good options for seniors? Let’s examine the reverse mortgage pros and cons -

Advantages of a Reverse Mortgage

• Homeowners can provide necessary cash from the equity you have in your home, without incurring monthly expenses.
• Homeowners cannot be forced by lenders to sell their property to pay back the loan.
• The homeowner is guaranteed to stay on the property for as long as he or she lives, even if the loan and interest becomes more than the value of the property.

Disadvantages of a Reverse Mortgage

• Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. Rates vary so it’s important that you secure a knowledgeable reverse mortgage consultant. The FHA reverse mortgage program is a lower cost option from the U.S. Department of Housing & Urban Development (HUD).
• Getting a reverse mortgage is essentially the same as spending the money you’d expect to leave to your heirs. Discuss your reverse mortgage plans with trusted advisors and family members before making your decision. Getting sound advice is essential because your home is often a person’s most valuable asset.
• Sometimes seniors become targets for scams. Typically, they are trusting of people who are perceived as experts. They may not fully understand the details of the reverse mortgage agreement or may not be thinking clearly (due to the onset of dementia or early stage Alzheimer’s). It’s very important to get a trusted consultant to explain the details of the reverse mortgage in full.

A reverse mortgage makes sense if your current home meets your needs now and for at least the next 3 - 5 years. Like any other financial tool, you should always ensure that you fully understand the financial ramifications of a reverse mortgage. The fact that these loans are growing is testimony that reverse mortgage benefits more and more people looking for ways to supplement their retirement income. A good reverse mortgage lender will clearly explain the advantages and disadvantages of a reverse mortgage and how it affects your situation, ensuring that you have all the reverse mortgage pros and cons to make an informed decision.

Reverse Mortgage Consultant - Denver, Colorado

This entry was posted on Tuesday, October 23rd, 2007 at 10:25 am and is filed under Colorado Reverse Mortgage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.