Reverse Mortgage Costs – Are They Worth It?

The largest investment most people will make in their lifetimes is in their homes. Sometimes, rather than sell their home and downsize, people look for alternative ways to use the equity they have built up over time. One of these options is a reverse mortgage. These mortgages are only available to people over the age of 62.

Reverse Mortgages

What is a reverse mortgage? A reverse mortgage is a home loan that draws on the equity that has been built up. The loan can be taken as a lump sum but is generally split into monthly installments, just like a mortgage (only in reverse). Unlike a second mortgage or a home equity loan, this type of loan allows the homeowner to withdraw the equity as cash without having to start paying it back right away. In fact, no repayment is required as long as the owner remains in the home or the equity is depleted.

Reverse Mortgage Costs

One of the reverse mortgage costs that must be considered before moving ahead with this type of loan is the consultation fee. A consultation with a reverse mortgage counselor is generally required before this loan can be secured. The cost is minimal and can usually be included in the loan.

When considering a reverse mortgage, the following should be taken into account:

• Age of youngest borrower
• Amount of time you expect to stay in the home
• Equity that has been accumulated
• Intentions for the equity
• Interest rate and fees

Some of the reverse mortgage fees to consider are the interest rate being charged on the money borrowed, the cost of the counselor consultation, loan origination fees, mortgage insurance and closing costs. These all add to the reverse mortgage cost and can make some homeowners think twice about moving forward with the process.

Many people are considering these mortgages as a way to pay for home improvements and upkeep, nursing home and long-term care costs, or to supplement social security and retirement savings.

Will my heirs inherit anything?

Many homeowners worry that by taking out a reverse mortgage they will not have anything to leave their heirs when they die. This can be true if the reverse mortgage is held for a long period of time or if the amount of money taken in the reverse mortgage equals the value of the home. In a traditional reverse mortgage, the money that has been borrowed against the home’s equity is repaid when the owner dies or no longer lives in the home and whatever remains passes to the heirs. In most cases, this probably won’t be very much; however, a reverse mortgage can be a very good option of last resort while allowing you to remain in your home indefinitely.