While the general idea of a reverse mortgage sounds appealing to many retirees, some homeowners might still be better off with traditional loans, the Chicago Tribune reports.
The article draws input from a Q&A between radio host Ilyce Glink and real estate attorney Samuel Tamkin, differentiating between traditional loans and reverse mortgage options available to Baby Boomers.
The Chicago Tribune reports:
“Given the decline in real estate values, a reverse mortgage lender might only lend 50% of a home’s value to a borrower,” says Tamkin. “That amount may not be enough to pay off existing loans on the home and give the borrower the lower interest rate he or she is looking for.”
Refinancing an existing loan that may have been paid down over the last 5-15 years might be a mistake for many homeowners if they take out a new 30-year loan, reports the Tribune. Rather than focusing on the reverse mortgage’s received monthly payment, borrowers must consider interest rates and the costs associated with refinancing the length of the loan.
“To truly compare loans when borrowers refinance, they need to have the lender give them the monthly payment that they would have if the loan were to be amortized over its original length,” says Tamkin. “Therefore, the right comparison in looking at the old and new loans is to figure out what the payment would be on the new loan if you amortized it over 18 years. You then can compare the new payment with the old one to see how much your monthly savings will be.”
Retirees should know about reverse mortgages as well as traditional loans so they can make an informed decision about their available options. For some, traditional mortgages might be best, while others might favor the reverse mortgage path, reports the Tribune.
Written by Jason Oliva