Amid the popularized reports of the reverse mortgage perils, considering several factors before applying for the equity-tapping loan will not only contribute to educated decisions, but will determine if a reverse mortgage is really the sound path for your retirement, writes an article from CNN Money.
Borrower’s age and cost should be two determining factors whether a reverse mortgage will provide gainful results, notes CNN.
CNN Money writes:
You want to put off a reverse mortgage as long as possible. The amount you can borrow is based on the current interest rate (you can borrow more when it’s lower), you home equity, and the age of the younger spouse. The older he or she is, the more you get.
Reverse mortgages are a notoriously expensive way to tap equity. For that borrower with the $300,000 home, fees would include $6,000 in upfront mortgage insurance, a $2,500 origination fee, and about $3,400 in traditional closing costs—and that’s before you get to the monthly mortgage insurance premium of 1.25% of the loan balance.
It’s also a good idea to get your heirs involved—particularly since they’ll be responsible for paying off (or selling your house to pay off) the loan after your death. They may be able to provide a private reverse mortgage or become a part owner of the house now.
For individuals considering a reverse mortgage as a way to build up retirement cash, CNN urges borrowers to meet with a financial adviser before committing to the loan.
Written by Jason Oliva