The couple purchased their home 45 years ago for about $14,000 since then
home values have skyrocketed and recent single family homes in their
neighborhood have been selling for a minimum of $260,000.
Like Betty and John, if youíre considering a reverse mortgage
itís important to do some research prior to making a decision. You not
only need to understand the basic principles of this kind of mortgage but
you also need to look at all the advantages and disadvantages of a
Essentially a reverse mortgage is a loan that permits homeowners
62 years of age and older to borrow against the equity in their homes
without having to sell it. Further, you donít have to give up the title
or take on a new monthly mortgage payment.
A reverse mortgage loan is tax-free and needs only to be repaid
when the borrower (or in the case of Betty and John, when the surviving
spouse) dies or sells the home. At which time, the reverse mortgage
loan must be repaid in full, including all interest and other charges.
When examining the advantages and disadvantages of a reverse
mortgage itís also important to consider both the process and the
related costs of obtaining a reverse mortgage.
Unlike a conventional mortgage, with a reverse mortgage, the
homeowner (the potential borrower) must meet with a reverse mortgage
counselor. References for counselors can be obtained from banks offering
reverse mortgages or the U.S. Department of Housing and Urban Development
The purpose of these meetings which may take place in person or on the
telephone is for the homeowner to learn about reverse mortgages and
discuss alternative options. It also helps you decide which kind of reverse
mortgage may be best.
As well as exploring the advantages and disadvantages of a reverse
mortgage, itís wise that the potential borrower, also compare costs
between various lenders and request a Total Annual Loan Cost estimate for each. Costs
for the reverse mortgage process may
include application fees, closing costs, insurance, appraisal fees, credit
report fees, and quite possibly a monthly service fee.
Remember too that since a reverse mortgage allows you to
continue living in your home, youíre still responsible for property
taxes, insurance and repairs. If these payments are not maintained, the
loan could become due in full.
A reverse mortgage may also affect eligibility for federal or
state assistance as well as Medicaid. That said, any reverse mortgage
money that is received is tax-free and does not affect Social Security or
The condition of your home is also a large part of the approval
process. It must be structurally sound and in good repair. If itís
determined that home repairs need to be done, the costs can also be
financed through the reverse mortgage loan.
The total amount a homeowner can borrow all depends on the kind of reverse
mortgage selected, how much equity is in the home, the loan's interest
rate and most importantly, the age of the borrower. Typically the older a
person is, the more they can expect to receive.
A borrower can receive reverse mortgage payments in one of the
following ways: in a lump-sum payment; fixed monthly payments; a line of
credit or a combination of any of the above. Most homeowners go for the
line of credit option which allows them to draw on the loan whenever money