A reverse mortgage can be used as a cushion for homeowners even when a house is up for sale, a USA Today article suggests.
Homeowners can get a reverse mortgage and then put their home up for sale if they need cash to get by until the house is sold.
“There’s no problem with that – other than the question of whether it makes sense to incur the costs of the reverse mortgage for such a short period of time,” said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association (NRMLA), in a Q&A in the USA Today article.
The costs of a reverse mortgage, some argue, can have negative effects on borrowers.
Origination fees can range in price — from $0 to $6,000 — and must be paid in addition to the normal mortgage refinancing closing costs. An upfront cost for private mortgage insurance costs .5% or 2.5% of the appraised value of the home. Mandatory counseling adds another $125. And recurring charges for mortgage insurance (1.25% of the amount borrowed every year) and servicing costs, which are about $30 to $35 a month.
But if the costs don’t deter a homeowner, then a reverse mortgage can be useful when the borrower is selling the home, Bell said. But the reverse mortgage must be the primary lien on the property, so any first mortgage, as well as any other liens on the property, would have to be paid off at closing with proceeds from the reverse mortgage or other sources, the USA Today article notes.
“When the home is sold, the proceeds from the sale will be used by the closing agent to pay off the reverse mortgage. So, if someone needed the cash to get by until the home is sold, this strategy could work,” Bell said.
Read the full Q&A here.
Written by Emily Study