Reverse Mortgage Benefits and Pitfalls
Q: What is your opinion of reverse mortgages? We have a home assessed at $157,000. Our nest egg is being eaten away and I was wondering about the benefits and pitfalls of a reverse mortgage.
A: Recently, Congress put some restrictions on the costs that lenders can charge for reverse mortgages, and it is too soon to know the results of that legislation. A reverse mortgage is an interesting concept. You can tap the equity in your home and take out your money in three different ways: lump sum, monthly or quarterly annuities, or line of credit, writing checks when you need the money.
But there are a number of negatives. While you do not have to pay any money to the lender, the interest will accrue on a monthly basis. That means that over the years, the equity in your home will disappear. When you die or decide to sell, the lender will be paid off in full. Because the lender runs the risk that at that later date, there may not be enough equity to be paid off in full, the charges are higher than if you obtained a conventional mortgage.
I suggest you do your homework first. There is a lot of good material on the Internet (just type in “reverse mortgage” at your favorite search engine). I recommend going to the AARP Web site ( www.aarp.org) because the organization is continuously examining these types of loans, and because it’s not a lender, it tries to be completely objective.
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Reverse Mortgage Benefits and Pitfalls
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