Reverse Mortgage Info

A reverse mortgage can be a lot of things: a way to make ends meet, a nice chunk of change for a rainy day, a fabulous dream vacation, or a remodeled kitchen. But there’s one thing it’s definitely not — free money. There’s no free lunch here. While reverse mortgages offer many wonderful benefits, your loan will need to be paid back, just like any other loan (whether it’s due when you move or upon your death).

There are fees involved that are explained in more detail in Part II, but they can include payments to the originator, the appraiser, postage fees, flood certificate fees, recording fees . . . the list goes on and on. Of course, these are the same sort of fees you paid for the mortgage that bought you the home you live in now. You also have to pay interest on your loan, which is generally right around the interest rates on traditional mortgages. You only pay interest on what you borrow, so any money that you don’t use from your pool of reverse mortgage funds isn’t charged. People still get the idea, however, that lenders simply hand you checks every month out of the goodness of their hearts. Now, they’re not bad people, but they certainly aren’t looking to give away billions of dollars per year in reverse mortgages.

Because it’s not a cheap loan, a reverse mortgage is also not the best way to pay off a small debt. Would you really want to spend several thousand dollars in fees and closing costs just to pay back a $900 credit card debt? You know that wouldn’t make sense. But what if you owed the IRS $12,000 in back taxes? In most cases, a reverse mortgage is still too costly for this kind of debt. Okay, that’s easy for us to say, and if it looks like the best option then by all means take the first step and call a reverse mortgage counselor. If you’re in a similar situation, you may also contact a financial planner who specializes in seniors’ money.

In fact, you can probably ask a reverse mortgage originator to refer you to someone good. They love to hand out referrals.

A reverse mortgage is also not a direct value-to-dollar loan. In other words, they aren’t going to lend you the actual value of your home; what they lend is a percentage of that value, based on age, interest rates, and area. For example, a 66-year-old in a high-end county with a $500,000 home may expect to receive around $163,000 with a Home Equity Conversion Mortgage (depending on interest rates). Don’t expect the full value of your home, or you’ll be very disappointed. Before you make plans to spend money you don’t yet have, go online to www.reversemortgage.org and click on the reverse mortgage calculator. This very cool tool gives you an estimate of what you may be able to borrow. Remember, you’re not selling your home for the amount you’re lent — you are simply borrowing equity that you already own.

Lastly, a reverse mortgage is not a panacea, or some kind of allencompassing loan that’s right for everyone. Just because you qualify by being a 62-year-old homeowner doesn’t mean you’re an ideal candidate.

• Are you at least 62 and own your own home?
• Do you plan to be in your home for at least 5 years?
• If you’re getting the loan to purchase or pay off something specific, have you looked into other options for financing those expenses?
• Are you comfortable with the terms of the loan?

The more of these questions you can answer “yes” to, the more ready you are for a reverse mortgage. When you feel you meet all of these suggested criteria, you’re ready to seek out a reverse mortgage counselor.