The Finance Blogger

The last question we received from one of our readers was about reverse mortgage loans. They are seniors on a fixed pension. They were wondering if a reverse mortgage loan would be the right thing for them to augment their income. This would allow them to take advantage of the equity that has built up in their home. This extra income would make their lives much more comfortable and pleasant in their older years.

They are also considering going on several trips. This money would come in handy to cover the cost of these trips. They are considering traveling when they still have their health. Older consumers are able to enjoy these trips while they are still healthy. They stated that their fixed income pensions are sufficient to live on. All of their daily expenses are covered. They currently do not have any debts, loans, mortgages or credit card balances.

Reverse Mortgage Loans

This couple is one of the fortunate ones in that they are financially independent and have sufficient funds to live on with out needing to cut back on their lifestyle.

Regarding the first question, anytime you can be debt free is a big plus and being naturally conservative, we not only applaud this approach, but advise people to strive towards debt freedom and avoid taking on additional debt. Our advice as a result for this couple is to avoid any kind of debt and avoid reverse mortgage loans as well.

However they may still wish to go ahead with a reverse mortgage loan so here is some more information about them which may help readers and this couple decide if they wish to proceed with a reverse mortgage loans.

There are fees associated with these types of loans and they will vary by lender, however in general this is what you should expect.

Fees associated with reverse mortgage loans:

• Mortgage Insurance: 2% (of the appraised value)
• Origination Fee: The cap is $2500 or 2% of the first $200,000 and 1% thereafter, whichever is more, with an overall cap of $6000.
• Title Insurance (varies)
• Title, Attorney, and County Recording Fees (varies)
• Real Estate Appraisal $300–$500
• Survey (may be required) $300–$500

 How Reverse Mortgage Loans Work?

Basically they are the reverse of a regular loan. Instead of making payments to the mortgage company on a monthly basis over a 25 or 30 year term, they receive either a

• Lump sum
• Monthly Payments
• Line of Credit

Interest is charged on the balance with the lump sum being the most costly in terms of total interest charged. Note that the lien or mortgage against the home will be the total of the equity taken out plus the expected interest on the reverse mortgage loan payments. Many people are confused by this. Since the money they receive will be less than the lien amount recorded against the home.

The reverse mortgage loan is to be repaid on the death of the owners and not before. Either by selling the home or paying the mortgage from other assets. In some areas, people feel that the line of credit is the best approach. Since the customer can repay the line of credit if additional money is available and the interest cost is usually less.

The clients must be over 62 years of age as well and apparently reverse mortgage loans are only offered in the US.

If you have questions about debt from loans, credit cards and mortgages, feel free to leave a comment with your questions. Please provide us with as much information as possible to help us better answer your questions. For more information about online mortgages and loan, click here.

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