Reverse Mortgage - Be Sure You Need It Before Applying For One

Reverse mortgages used to be considered the last resort of desperate retirees who needed to borrow against their home equity in order to pay for medical expenses. With home prices across the country rising at astonishing rates, more and more retirees, aged 62 and over, are taking out reverse mortgages to fund better retirement living. A reverse mortgage works more or less the opposite way from a conventional mortgage; the borrower receives payments from the lender in the form of a lump sum, a line of credit, or monthly payments. The amount borrowed constitutes a lien against the home must be repaid upon the death of the borrower, or when the home is resold. There are costs associated with a reverse mortgage, however, and potential borrowers should be aware of these when considering taking out such a loan, particularly if the borrower takes out a line of credit.

All loans have fees associated with them. There are home appraisals, paperwork fees, mortgage insurance fees, and additional "points" added to the cost of the loan. In general, the costs of taking out a reverse mortgage are higher than those associated with a traditional mortgage. There are several reasons for this, including the fact that the time period for receiving repayment of the loan is indefinite, typically depending on how long the borrower lives. This uncertainty is added into the loan in the form of additional fees.

Most people who take out a reverse mortgage opt to take their funds in the form of a line of credit, rather than a lump sum or monthly payments. There are advantages to a line of credit, which allows the borrower to use the funds by simply writing checks against the loan. The primary advantage is that the borrower only uses the funds when he or she needs them. Because of this, interest only accrues on the money if the borrower actually writes checks. Borrowers should be aware, however, that the costs of the loan, which can be substantial, apply even if the borrower doesn't write any checks against the loan. If the homeowner takes out a line of credit and decides to sell the home shortly thereafter without ever having written a check against the loan, the borrower will not owe the lender any interest or principal, but the borrower will lose the money paid for the cost of the loan, which is not refundable. If the borrower rolled the costs into the loan itself, they could owe payments even if they never wrote a check.

In short, borrowers considering taking out a reverse mortgage should make sure that they plan to stay in their home for quite some time and that they actually need the money from such a loan. A reverse mortgage is a great idea for those who have a specific purpose or use in mind, but as an emergency source of "rainy day" funds, it can be an expensive choice.

©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a Website devoted to debt consolidation information and HomeEquityHelp.net, a site devoted to information on home equity loans.

Congress may have to approve a 'TARP 2,' economist says BloggingStocks - 23 hours ago ... it is clear we will need more money to purchase toxic assets, improve bank capitalization and allocate funds for home mortgage refinance programs, ...

Is Now the Right Time to Refinance Your Mortgage? Eastside Business Journal, Washington - Nov 18, 2008 By Rick Hubbert How do you know when it is the right time to refinance? Some believe that if homeowners can shave one point (1%) off their existing rate, ...

Center for Responsible Lending and Industry Groups Urge HUD to ... MarketWatch - Nov 20, 2008 ... to help the largest possible numbers of at-risk borrowers. This is not the appropriate time to permit the lapse of a viable mortgage refinance option.

Should Obama name FDIC's Bair as a Special Advisor for Mortgage ... BloggingStocks - Nov 18, 2008 Although he has shown support for mortgage refinance programs aimed at achieving lower payments - - 'payment relief' in Washingtonspeak - - Paulson has ...

National housing crisis exacting heavy toll in Riverside County Press-Enterprise, CA - Nov 11, 2008 By DUANE W. GANG Riverside County remains at the forefront of the national housing crisis with thousands of homeowners in the unenviable position of owing ...

Milwaukee Journal Sentinel Firstwatch column: Firstwatch: What's ... Trading Markets (press release), CA - Nov 20, 2008 ... counselors will be there to conduct loan workout sessions, provide information about financial literacy programs and offer mortgage refinance options. ...

De-Leverage Your Wallet Motley Fool - Nov 20, 2008 I also caution against opening new lines of credit if you plan to get a loan (car, mortgage, refinance) in the next six months or so. ...

Mortgage Applications Down 43.4% Year on Year HNN Huntingtonnews.net,  USA - Nov 6, 2008 By David M. Kinchen The Mortgage Bankers Association (MBA) on Wednesday, Nov. 5, 2008 released its Weekly Mortgage Applications Survey for the week ending ...

When refinancing mortgage makes sense Chicago Tribune, United States - Nov 14, 2008 But you don't have to be in financial trouble to benefit from mortgage refinance, real estate experts say. "At this point, there are thousands of good ...

Local mall operator says it's at risk for default Boston Globe (registration), United States - Nov 12, 2008 ... on school loans are waived..and a government backed mortgage refinance program to give homeowners a chance to stay in their homes to pay their debts. ...