U.S. News: Things to Consider Before Getting a Reverse Mortgage

Reverse mortgages can serve as a potential path for older Americans to gain access to additional cash in retirement, but there are several considerations a retiree should make before applying that are both pros and cons. This is according to a new column published this week in U.S. News & World Report.

A primary advantage of a reverse mortgage is that it can allow seniors a new potential path to cover current expenses, according to Katie Ross, education and development manager for American Consumer Credit Counseling in Auburndale, Mass.

“Money from a reverse mortgage can provide seniors with the financial security they need while allowing them to stay in their home,” Ross tells U.S. News, which can help a retiree to avoid moving to a less expensive or smaller home.

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This is in addition to the idea that qualifying seniors will not have to meet the same criteria normally associated with other loans, Ross says.

“There are no credit-worthiness or income requirements,” Ross tells the outlet. If a borrower is at least 62 in the case of a Home Equity Conversion Mortgage (HECM), lives in the home and has enough equity to draw upon, then a reverse mortgage could serve as a viable option.

“The funds from your reverse mortgage loan can be used for any purpose,” adds Joseph J. Zoppi, managing partner of Templar Real Estate Enterprises in Princeton, N.J. to the outlet. “The homeowner does not need to make any monthly mortgage payments as long as the homeowner lives in the home and continues to meet their obligations,” Zoppi says, citing property taxes, maintenance and insurance fees as the major obligations to keep the loan in good standing.

A drawback of a reverse mortgage is for those who are very conscious of wanting to leave their home as a bequest asset to their heirs, Ross explains to U.S. News.

“You will have less equity in your home that you may want to leave to your children,” she says.

Other cons to consider according to Zoppi include the generally higher upfront costs associated with getting a reverse mortgage, and potential impact on a borrower’s ability to avail themselves of other government assistance programs such as Medicaid, he explains.

“The fees for a reverse mortgage can be higher than a traditional mortgage,” Zoppi says. “The homeowner’s eligibility for certain government programs, such as Medicaid or Supplemental Security Income, may be impacted.”

For those who are short on cash, do not intend to leave their home to an heir and want to remain in the home they currently live in, a reverse mortgage could present a viable opportunity for creating additional cash-flow, though there are other options worthy of consideration including downsizing into another home, selling the home to family members or refinancing an existing traditional mortgage, the column reads.

Read the column at U.S. News & World Report.

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  • There is a lot about this article I did not like, one in particular is what Katie Ross stated, which was:

    “There are no credit-worthiness or income requirements,” If a borrower is at least 62 in the case of a Home Equity Conversion Mortgage (HECM), lives in the home and has enough equity to draw upon, then a reverse mortgage could serve as a viable option”.

    This statement is wrong, we do have credit worthiness and income requirements! We have a ruling called, “Financial Assessment” (FA), Katie needs to read up on this before making statements like this.

    The article talks about the drawback of a reverse mortgage. Stating that those who are very conscious of wanting to leave their home as a bequest asset to their heirs. This is true, however, I have found that 80% of the senior Homeowners heirs are more concerned about their parents and grandparents living their lives to their fullest! They feel if a reverse mortgage will do just that, then go for it!

    Joseph J. Zoppi states that other cons to consider are the generally higher upfront costs associated with getting a reverse mortgage, that is true and for those that don’t intend to stay in their Home for only a year or so, it makes no sense to take out a reverse mortgage.

    For those who are consideration downsizing into another home, the reverse mortgage purchase program is an ideal way to go. The senior gets the both of the best world for themselves!

    John A. Smaldone
    http://www.hanover-financial.com

  • Well said John Smaldone.

    One of my pet-peeves is the thought that one will have a higher mortgage balance (less equity) with a HECM (or any type of reverse mortgage). Katie Ross says “You will have less equity in your home that you may want to leave to your children”.

    This is assuming that one doesn’t make the (optional) monthly mortgage payment on the HECM (or any type of reverse mortgage). This is also assuming that the home will not appreciate (enough) to leave more equity to the Heirs.

    While I agree that not making a monthly mortgage payment is great for cash flow purposes, lets not blame any type of reverse mortgage for a retirees’ decision to have more cash each month (by not making mortgage payments). That is the borrowers decision (not a fault of a reverse mortgage).

    • Tim,

      Thanks for your compliment. I also highly agree with what you stated as well. I wonder sometime how much some of these people understand the ins and outs of a reverse mortgage?

      Thanks again Tim,

      John A. Smaldone

  • Great comments from my friend’s John & Tim!!!
    Aren’t we sick and tired yet of publications like this consistently spreading false information?
    I have an idea, lets get 20 of us together and each put up $500.00 a month, or 10 of us doing a $1,000.00 a month, and take ads in this publication and USA Today.

    Let’s give the right message about Reverse Mortgages to the public!!!
    We can make this work!
    Let’s do this!!!!

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