The combined debt of Americans age 65 to 74 is rising faster than that of any other age group, leading many older adults to turn to reverse mortgages for financial help, writes an industry publication for Certified Senior Advisors in an article this week. And while opinions differ on whether a reverse mortgage is a good tool for older adults or a costly loan, recent advice suggests the latter.
Lenders may charge higher fees to offset risks they incur from not receiving interest until the loan is due, according to the Society of Certified Senior Advisors (SCSA), a group that educates those who work with seniors so they better understand age-related circumstances.
“In recent years, many older adults, especially baby boomers, have turned to reverse mortgages because their savings have not kept pace with their expenses,” the SCSA article states.
Boomers ages 62 to 64 now make up 20% of prospective reverse mortgage borrowers, and nearly half the people considering the loan today are younger than 70, the article notes. But with a reverse mortgage comes loan-related fees, which can be more costly in certain circumstances.
These costs include origination fees, which depend on the value of the home; mortgage insurance premium (MIP), which can vary depending on what percentage of available funds are taken out during the first year of the loan; closing costs and appraisal fees, which vary by region, type and value of home; and interest rates, which depend on whether the loan is fixed or variable.
Additionally, advisors point to the interest rate for reverse mortgages, which can differ from that of a traditional home equity loan.
Before taking on these costs, SCSA suggests seniors think twice about their decision to take out a reverse mortgage.
To read the full SCSA article, click here.
Written by Emily Study