Reverse Mortgage

Time/NextAdvisor: Know Reverse Mortgage Professionals and Cons Earlier than Getting One

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A senior considering a reverse mortgage loan should consider all potential risks and rewards equally before deciding whether or not to obtain such a loan. This emerges from a new column by NextAdvisor personal finance columnist Joe Cortez, published by Time.

“Fear of COVID infection in nursing homes has many older Americans and their families who are considering other options,” writes Cortez. As of February 2021, more than a third of the country’s COVID-related deaths were in long-term care facilities. Many are turning to reversing mortgages to pay for home care as an alternative. This helps explain why industry tracker Reverse Market Insight data for 2020 reflects a 34.8% year-over-year increase in reverse mortgages. “

For someone considering a reverse mortgage loan to either avoid moving to a care facility or other senior housing facility, or for those looking to top up their retirement savings, there are a number of advantages and disadvantages of becoming a potential borrower should be noted, according to Cortez.

Among the pros, the first is primary access to extra cash, he says.

“For some, reverse mortgage payments allow them to postpone social security collection and receive higher monthly payments, while others use the money to add to their fixed-income budget for long-term health needs,” writes Cortez.

A financial planner agrees with the claim, telling Cortez that taking out a reverse mortgage can provide access to cash that can be used for a variety of different needs.

Other potential “pros” for a borrower are the ability for the borrower to stay in their home; the idea that the loan proceeds of a reverse mortgage are non-taxable; the lack of recourse to the loan minimizes the likelihood that the debt will exceed property value; and contrary to popular belief, the borrower continues to own their home.

First and foremost, the drawbacks a prospective borrower should consider include cost, according to Cortez.

“Depending on the home and type of reverse mortgage, the closing cost alone can exceed $ 20,000,” he says. “In addition, homeowners will also be responsible for paying many of the fees that were once part of their monthly mortgage payment. Of the monthly mortgage repayments, homeowners must allow for quarterly property taxes, home insurance, and all homeowners’ association dues.

Other potential downsides are that if a borrower misses property tax and / or insurance payments or cannot maintain the home, the home can still be foreclosed; Interest rates could “cut” home equity even further; the guidelines for home equity conversion mortgages (HECMs) are very strict; and a change in status can result in the terms of the loan being changed, he says.

Read the article on Time about NextAdvisor.

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