Reverse Mortgages May Not Be Worth the Price Tag

By Debbie Wilson
Loan Page Columnist

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While there certainly are many benefits of taking out a reverse mortgage, there are a few big reasons not to. So before you take the leap in reverse mortgages, decide whether it's worth the price tag, the time lag, and the cost to future generations.

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The Reverse Mortgage Price Tag

A reverse mortgage could cost you as much as $10,000 on a $200,000 loan. Why so much you ask? Well, after you cover the 2% lender's origination fee, a 2% mandatory mortgage insurance fee, and other miscellaneous costs such as title insurance, appraisal fee, and repairs and maintenance, the sizable up-front costs just might not be worth the loss of equity in your home.

In addition to these fees, you might want to consider whether you'll be downsizing or moving to assisted living with the upcoming future. If so, a reverse mortgage may not be the best choice. Instead, look for a cash-out refinancing or home-equity loan option, which can provide you with the cash you need today.

The Impact of a Reverse Mortgage on Future Generations

If leaving your home or home's equity to the next generation is important to you, sit down and discuss the results of a reverse mortgage on inheritance. Someday, your mortgage will need to be paid off, either in cash or when the house is sold.

By taking out a reverse mortgage, you can drain your home's equity, leaving your children with little or nothing. That's because when the loan comes due, the amount owed equals the borrowed amount plus fees and interest. Rates on reverse mortgages are not fixed, and although they cannot rise more than five points, it can be a significant amount.

Reverse Mortgage Time Lags

Reverse mortgages can be very confusing, and many individuals find themselves meeting with a counselor to make sense of the loans offered. Counseling takes time and time costs money, meaning that it could take up to three to six months to obtain and close on a reverse mortgage loan.

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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