1. “I want to leave my house to my children.”
Let’s first find out if your children WANT your house! Many families today live in different
states and they already have a home. Most children of seniors that I talk to want their
parents to be more financially secure and they couldn’t care less about getting the house
later. Talk to your family to see how they really feel. Also, remember that any equity left can
still go to your children. You can also look into insurance policies that may give your children
cash instead of a house ! Or you may be able to use some of the Reverse Mortgage proceeds
as a gift to your children so you can see them enjoy the money while you are here.
2. The Bank will take my house and my equity.
This is simply NOT TRUE ! The senior will keep the title to their property and may sell
their home at any time. When the loan is paid off, any equity left will go back to the senior
or to their estate.
3. The closing costs are too high.
Well, compared to what? If you were to get an FHA first mortgage on your home, the
closing costs would be very similar to the Reverse Mortgage.
If you compare to a line of credit (which is harder to qualify for) then the closing costs would
be less on the line of credit, but you would still need to make payments on the line and the
line doesn’t grow. Many seniors start out with a line of credit but get tired of making
payments and paying higher interest, so they end up with a Reverse Mortgage anyway.
The Reverse Mortgage line of credit is tax free and the growth on the unused portion also
grows tax free (around 3.5% these days) plus you NEVER have to make a payment.
4. I will have to pay back more than I borrowed.
Yes, this is true, however, this is true of any mortgage. On a “traditional ” first mortgage, if
you borrow $100,000 at 7% rate and pay on that money for 30 years, you actually pay back
OVER $250,000 !! The difference is that on a Reverse Mortgage, you won’t be making
payments on the loan during the time you have use of the money. In addition, you can live in
your home for as long as you wish and you can never owe more than the property is worth.
5. ” If I wait, I can borrower more later because I will be older.”
While it’s true that as you age, you are eligible for higher loan amounts, this is also based on
your equity/value of your home. Your home may not have appreciated enough in the next
year or two to offset the difference. In addition, rates have dropped which also allows you
to get more cash. Rates may be higher later. The most important thing to think of is that
none of us knows what tomorrow will bring and perhaps you will be able to use the money
sooner, rather than later?
The best decision you can make is one that considers all the facts.
Brenda Wheeler, Reverse Mortgage Specialist, M & I Bank Indianapolis
Thank you for the information. I have been trying to avoid foreclosure bigtime and this helps me put things in perspective
really fine article. i promise to apply some of these in my blog. thank you!