Reverse mortgages earned a bad reputation in the past when they were abused by some lenders across the country, but now they are making a modest comeback and are being seen as a way to fill gaps of income in retirement, according to a recent article by The New York Times which notes home equity is now making a lot more sense for older Americans to tap into.
The proceeds from a reverse mortgage can help borrowers pay for out-of-pocket health care costs or other financial issues that people hadn’t planned for when saving for their retirement, the article explains.
“Since the loans are insured by the government, the Federal Housing Administration will cover any shortfalls between the final loan balance and net proceeds from the sale,” the article points out. “That means you don’t have to worry about being ‘underwater’ on the loan in case the home’s value is less than the mortgage amount.”
Even though the perks, when used in the right situation, are great and the changes made in the last few years to the program make it the much safer than in the past, reverse mortgages are still not being used much.
Those perks are being noted by financial planners however, and they are starting to recommend them to their clients as a way to offset costs in retirement.
Making sure potential borrowers do their research and shop around is also stressed. “Like other mortgages, they [reverse mortgages] have closing costs, which range from $4,000 to $15,000, though those amounts typically are not paid upfront because they can be added to the loan’s principal,” writes the article.
Borrowers shouldn’t feel they are going at it alone, speaking with a trained counselor and taking a look at the FHA’s website are also extremely important to know what exact costs will be and what all the details of a reverse mortgage are.
Getting an elder-law or estate-planning lawyer involved also may be necessary if the borrower hopes to include their home in a legacy plan.
Read the full article from The New York Times
Written by Alana Stramowski