Here’s how reverse mortgages work. You receive a loan from a financial institution. The loan starts accruing interest when you receive it. However, you don’t make any payments on your loan during your life. At the time of your death your house is sold and the bank is paid back the money due to it and the balance goes to your heirs.
In some situations, reverse mortgages are an excellent option for a senior to maintain his or her living standards where cash flow is insufficient to pay for these basic expenses. This also allows seniors to stay in their homes when they do not have sufficient savings or income to cover their expenses.
Should You Take Out A Reverse Mortgage?
If you are considering taking out a reverse mortgage, you should try to utilize the funds from the reverse mortgage for as long a period of time as possible. If you are in your sixties and you have a life expectancy of 25 or more a years, you may be too young to take out a reverse mortgage. By this I mean, you may take the money out, spend it and still be in the same situation 5 or 10 years later. However, at the later point in time you would not have a nest egg to fall back on. It should be noted the longer the reverse mortgage is in effect the more the interest compounds and the more you will owe.
Higher Interest Rates on Reverse Mortgages
The interest rates on reverse mortgages are higher than those of a conventional mortgage. In addition, there are upfront mortgage insurance expenses, origination fees and closing costs. You should review with a financial adviser or an elder care attorney your financial circumstances and whether taking a reverse mortgage is appropriate in your personal circumstances.
Conventional mortgages
If you have a reasonable cash flow you may be entitled to a conventional mortgage. A conventional mortgage is less expensive to take out, there are less closing costs and the interest rates are lower.
About the Author
Elliot S. Schlissel is a member of the National Academy of Elder Law Attorneys. He represents seniors with regard to drafting wills, trusts, Medicaid planning as well as issues involving powers of attorney and health care proxies.
