Reverse Mortgage

When Does a Reverse Mortgage Make Sense?

July 10th, 2009  |  Published in Reverse Mortgage  |  Comments Off on When Does a Reverse Mortgage Make Sense?

Reverse mortgages have recently come into the spotlight as a band aid for seniors with cash flow problems. Unfortunately, the media attention has been generally negative, focusing on a small set of shady brokers that give the entire niche a bad name.

Despite working in the mortgage industry, I’ll be the first to tell you that reverse mortgages are NOT smart for every situation because of the high up front cost. However, if you qualify and need to tighten your financial belt a bit, a reverse mortgage could make sense. Here’s a few situations where a reverse mortgage could be a sound financial decision.

If you’re retired and don’t have any cash left over at the end of the month. Some seniors are still paying a mortgage payment every month and don’t have much left after living expenses. With a reverse mortgage, individuals in this situation could completely get rid of that monthly mortgage payment. Most likely that would amount to freeing up over $1,000 every month.

If your home is paid off but your investment or pension income isn’t paying the bills. In the same vein as the first situation, it might make sense to pursue a reverse mortgage when a homeowner has a large chunk of equity in the home and their monthly income is insufficient. Equity can be cashed out up front or as a monthly payment like an annuity.

If you have high interest debt on your home or some other asset. This is a less common use for reverse mortgage proceeds but in some cases it makes sense. Say for instance, you have a home equity line of credit at 8% or more. That amount could potentially be refinanced at a lower rate or just paid off in full with a reverse mortgage.

Like any loan program, every situation warrants a individual assessment from an experienced professional. If you think a reverse mortgage might make sense, I encourage you to check out our article on the pros and cons of a reverse mortgage and check out our other resources.

Brandon Laughridge is the editor of the Mortgage Loan Place Blog and specializes in educating consumers on the merits of FHA, VA, and Reverse Mortgage programs. To learn more, please check out the MLP blog or follow Brandon on Twitter.

Reverse Mortgages: Proprietary Reverse Mortgages

June 29th, 2007  |  Published in Reverse Mortgage  |  Comments Off on Reverse Mortgages: Proprietary Reverse Mortgages

These kinds of reverse mortgages are a lot like Home Equity Conversion Mortgages in that you can do whatever you want with the money, but they differ in who offers them – these are offered by private companies and are really private loans. Again, more expensive than the single purpose reverse mortgage, but in turn you get the freedom to do whatever you want with the funds.

Some other differences are that HECMs will usually offer larger loans at a cheaper cost compared to the proprietary loans but proprietary loans will be more likely be larger overall. If you need the most amount of money and you’re less concerned with cost, a proprietary reverse mortgage will be more in line with what you want.

Reverse Mortgage: Home Equity Conversion Mortgages

June 28th, 2007  |  Published in Reverse Mortgage  |  Comments Off on Reverse Mortgage: Home Equity Conversion Mortgages

Home Equity Conversion Mortgages are another name for federally-insured reversed mortgages and they’re backed by the US Department of Housing and Urban Development. HECMs are generally more expensive than other loans, have higher up front costs and are generally worse in terms of cost if you leave your home soon after security in the reverse mortgage. In return for paying the higher costs, there are no income restrictions and you are free to use the money however you please.

With an HECM, you will have to first meet with a counselor from the government-approved housing counseling agency so that you fully understand all the costs and they’ll give you some alternatives (at least they should). If you want the reverse mortgage because you need to perform some repair work on your home, they will point you towards single purpose reverse mortgages instead because they’re cheaper.

Reverse Mortgage: Single Purpose Reverse Mortgage

June 27th, 2007  |  Published in Reverse Mortgage  |  Comments Off on Reverse Mortgage: Single Purpose Reverse Mortgage

A single-purpose reverse mortgage is one of the three main types of reverse mortgages and they are offered by state and local government agencies and non-profit organizations. The benefits of single purpose reverse mortgages are that it’s generally very cheap in terms of costs but they’re not available everywhere and can only used for the one purpose specified by the organization that offers the reverse mortgage. For example, some of them specify that you can only use it for repairs or improvements while others say you must use it for taxes. Another knock against single purpose reverse mortgages is that you can only qualify if you have moderate to low income.

What Is A Reverse Mortgage?

June 26th, 2007  |  Published in Reverse Mortgage  |  Comments Off on What Is A Reverse Mortgage?

A reverse mortgage is exactly what it sounds like, it’s a lot like a regular mortgage except the bank pays you. Okay, it’s a little more complicated than that, but that’s the jist. What actually happens it the bank gives you a loan and you don’t have to repay the bank until you die, sell your house, or stop living there are your primary residence. There are other conditions most banks require and that is that you must live in your home (part of the first group of conditions) and that you’re over 62. Some other bonuses of reverse mortgages are that the proceeds are generally tax-free and there are often no income restrictions on who is eligible. They mostly allow house-rich but cash poor individuals to extract some equity from their home so that they can live on it in retirement (hence the 62 age restriction).

There are three types of reverse mortgages: single purpose reverse mortgage, federally-insured reverse mortgage, and there are proprietary reverse mortgages. We’ll discuss the three different types in the next few days.