Reverse mortgages are fairly new and appeal to a great many senior citizens. Although they can be a great benefit to many, seniors should check them out thoroughly before obtaining one
For those who do not know what a reverse mortgage is, it is exactly what the name implies. It works in reverse of the regular mortgage. Instead of the mortgage amount going down and the equity going up as you make payments to a traditional mortgage, the equity goes down and the mortgage amount goes up as you draw against your equity for a reverse mortgage.
You must be 62 years old or older to take advantage of a reverse mortgage. You must also live in the property that is to be mortgaged. There are several mistakes to avoid when taking a reverse mortgage.
First, people sometimes do not shop around, believing that there is no difference in companies offering reverse mortgages. Not only are there different companies physically near you, the internet abounds with companies in this business. Many have different rates and different terms. Shop around and pick the company that best suits your financial situation.
Be on the lookout for scams. Sadly, in dealing with senior citizens there are numerous shady characters trying to make the quick buck. Check out the company completely and stay away from those that charge you thousands over the normal costs. Be sure to check with the Better Business Bureau. Find out if there have been any complaints against the company you are interested in.
Realize how much the normal fee will be. Think about 6- 10% origination fee, the amount charged for an appraisal and closing costs that run higher than a traditional loan. Of course, these can be deducted from the loan proceeds, but it is your equity paying for them.
Realize that one of the requirements of the loan is that you have to reside in the property the majority of the time. Should you have to go to a nursing home for extended care and the property is vacant for a period of twelve weeks or more, the loan may be called.
Consider future living expenses. If all the equity is used from your home, then you have no padding should you have heavy medical expenses or living expenses in the future.
Consider these things when looking at a reverse mortgage. It may still be right for you, but educate yourself before acting.