When is a Reverse Mortgage Right?

by : Michael Branson



Since first offering reverse mortgages, I've often been asked, How do I/we know if a reverse mortgage is right for me/us? This is a question that has a different answer for different people. I always start with the same first response, The first thing I would recommend is that you seek the guidance of a qualified financial advisor. After having given that advice, I am only too happy to go through the circumstances for the individual borrowers and give them their options.

A reverse mortgage is not an inexpensive loan. The loan fees are based on the maximum credit limit for the HUD lending area for the government Home Equity Conversion Mortgage (HECM). The loan also has an up-front mortgage insurance fee of 2% of the maximum lending limit which also increases the costs. Add to these the normal costs such as appraisal, escrow, title fees, etc., and it's not uncommon for the costs to get up to $17,000 or slightly more in some of the higher HUD lending areas.

While the costs seem high, the insurance on this loan are more for borrower protection than any other loan the government insures. This insurance protects the borrowers in two ways. Firstly, if a lender ever goes out of business or fails to pay a borrower in a timely manner for any reason, HUD steps in and makes certain that the borrower receives a steady stream of payments. As you read about lenders going out of business, with a HUD insured loan, you never have to worry about whether or not your payments will be made to you. Also, HUD will insure that the borrower will never owe more than the property is worth regardless of how much money the borrower receives over the years, how much interest accrues, or what property values do in the future. Everyone hopes that values will continue to go up, but if the values should fall, the senior borrower and their heirs will never owe more than the property is worth.

So now that you know what the costs are, how can you decide if you should go ahead with the reverse mortgage? If you're a senior homeowner, ask yourself the following questions:

Do you find yourself short of funds every month?
Do you wish you had money to repair your home but don't and can't borrow and make payments?
Are there rising medical costs you can't quite cover and your insurance doesn't cover them either?
Are you making a monthly payment that is keeping you from being able to live your life as you would like?
Do you wish you could travel, or help a loved one through their education but you just don't have the funds in the bank to do so?

If you answered yes to any of the questions above, it may be time for you to put your equity to work for you with a reverse mortgage!