What are the pro's and con's of a reverse mortgage?

Answer 1

Well, hope you are sitting down......

First, ALL borrowers (usually the husband and wife - ALL parties on title) must be 62 or older. If the parents put the son (Johnny) on title, they need to have him removed in order to do the reverse mortgage.

A reverse mortgage offers EQUITY in the home to the borrowers (primary residence ONLY) The borrowers are able to take this equity in any increments they desire - a one time lump sum, monthly payments (like an annuity) or a split combination of both.

Pros - it keeps mom and dad in the home, it offers equity to the borrowers in the form of CASH today and does not require ANY form of repayment, until after the last occupant passes away or vacates the property as their primary residence. It can improve quality of life for some people or afford better assisted living while they live in their home, pay for medical treatments...whatever. Finally, it is a federal program and is cookie cutter - meaning Broker A and Bank A sell the same product with the same calculations and fees.

Cons - the calculation used to come up with a figure is based on the area the home is in, youngest age of occupant, value of home and mortgage balance that may exist on the home. Generally speaking the young the occupants the lower the equity - because the banks are looking at NO REPAYMENT of interest at all during the 'living' period. The older the occupants the higher percentage of value will be granted. The fees to do such a loan are HIGHER than a refinance. Parents often think they are squandering away their legacy that they wanted to pass on to their children.

A reverse mortgage is a GREAT solution for older borrowers, in poor health and not so much cash assets.

If the borrowers are younger, closer to 62, they should look at selling and down sizing.

If the borrowers are going to move forward with a reverse mortgage , the government REQUIRES ALL borrowers to attend a third party counseling program to inform them of the pros and cons as well. I have seen family members accompany the borrowers too - it is informative and generally when people are considering this option, kids or others are involved in the decision making process.

I have been certified to offer reverse mortgages - this is NOT a solicitation just stating I am certified to share information about the subject.

Hope this help, good luck