We’ve all seen the commercials for reverse mortgages, which allow you to access the value in your home without selling it. John answers reverse mortgage questions all the time, and now he’s going to help Devin and you learn more about the pros and cons of reverse mortgages. Whether you’re learning for yourself, or helping your parents, there is something in here for you!
A reverse mortgage is a loan against the value of your house, and you don’t have to repay that money until the property transfers ownership, often due to death of the homeowner.
On average, you can access up to about 60% of your home’s value. There are many different ways to access this money. You may be able to chose a lump sum, a series of fixed payments, an annuity-type payment, or a line of credit.
It may sound like a great deal, but there are many reasons why it isn’t as great as it seems. But it can still be the right tool for certain people in certain situations.
First, reverse mortgages have very high fees. This includes a large origination fee, and lots of other little fees. Interest rates are typically high and many reverse mortgages have a variable rate. Though there are federal laws that prohibit the most predatory costs, a reverse mortgage is very expensive.
It can also be very difficult to figure out the possible unintended consequences of taking out a reverse mortgage. One of the first problems is that the reverse mortgage requires that you occupy the property. What happens if you are in the hospital, a nursing home, or a rehabilitation facility for a long stay?
Like most financial products out there, there are some cases where a reverse mortgage is a good fit. You need to get some good qualified advice before you jump in, but don’t get that advice from the people selling the reverse mortgage. Federal law requires that you sit down with a counselor, but that also isn’t the best place to get thorough, impartial advice. You want a financial planner or an elder care attorney to help you evaluate all the options to accomplish your goals.
- What Tom Selleck has to say about reverse mortgages
- Why reverse mortgages are foreclosed upon at a much higher rate than a regular mortgage
- How you can buy a house with a reverse mortgage
- John explores some other options to tap the equity in your home
Resources mentioned in this episode:
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