As was stated in Part Three, everything about a Reverse Mortgage can’t be just perfect. There have to be some aspects of a Reverse Mortgage that may not be as desirable as on other mortgage products. Let’s examine what some of the downsides and pitfalls may be.
High Fees and Closing Costs
Fees and closing costs are higher on a Reverse Mortgage compared to a forward mortgage (Standard Mortgage with Monthly Payments). Each Reverse Mortgage has a one time 2% charge of the appraised value from FHA that goes into a pool of funds, much like a one time Mortgage Insurance payment. Reverse Mortgages also have a one time charge for monthly servicing of the loan. With a forward mortgage this fee is collected monthly and hidden in the payment. Origination Fees along with Attorney Fees and all other fees to close a loan remain in effect. A counseling fee has to be paid as HUD requires all applicants to obtain counseling prior to the lender processing the loan. On the bright side of most of the fees and closing cost associated with a Reverse Mortgage, the borrower is not paying them in the form of cash they are being rolled into the loan. The best way to evaluate what kind of fees and closing costs would be involved in a Reverse Mortgage for you would be to schedule a consultation with Qualified Atlanta Reverse Mortgage Lender.
I’m Spending My Kids Inheritance
With a Reverse Mortgage you are utilizing the equity in your primary residence as opposed to leaving it to your heirs. Of course the strong likelihood of appreciation exists for the residence thus leaving a situation where there may be equity for the heirs to divide.
Property Taxes and Insurance
If you had a forward mortgage on your primary residence and paid your property taxes and insurance through an escrow account you will now be paying those bills yourself.
Limits on Reverse Mortgage Amounts
Remembering from Part One in this series, Reverse Mortgages are an FHA product and are thus regulated and controlled by FHA loan limits. Currently that figure is $417,000. There are rumors that the possibility exists that there will be Jumbo Reverse Mortgages available in the near future. While I don’t know this to be fact or fiction I am just letting you know what I am hearing.
Possible Problems With New Construction
Newly built properties must comply with FHA minimum property requirements, the Certificate of Occupancy must be issued, if the residence is a Condo the Homeowners Association must have been in control of the association for 1 year and any loan that financed construction must be paid and the Reverse Mortgage assumes the first position on the residence.
Possible Problems With A Refinance
When utilizing a Reverse Mortgage for refinancing your primary residence there will of course be an appraisal performed. If the appraiser determines that major repairs need to be made, funds from the Reverse Mortgage can not be drawn upon until these repairs are completed. These needed repairs can be handled in one of several ways:
1. Completed Prior to closing with borrowers funds
2. Completed After closing with a Repair Rider to the Reverse Mortgage
3. Completed After closing with funds escrowed at closing
I hope you are finding this educational series on Reverse Mortgages helpful. Just doing the research has been a huge educational experience for me. I have one more part planned and that will be a FAQ (Frequently Asked Questions) unless you as the readers have topics that you would like for me to research for you and report here. Let me hear from you, So until Part Five….
{ 3 comments… read them below or add one }
As someone else mentioned, so many financial planners and tax consultants just don’t understand how the reverse mortgage works. I’ve found that once they get all the facts, they feel very different about the mortgage and the benefits to Seniors.
I am grateful that you’re taking the time to educate
people. Many Seniors have lots of equity in their homes, they’re cash poor, and with no credit or income requirements could easily turn that equity into monthly income or a line of credit. No one who has worked hard their entire lives should have to worry about money in their later years. Thank you Mack
Your articles on the reverse mortgage have been very helpful. One question. What would happen if you become unable to pay your real estate tax.
Hi Helen and welcome to the conversation. You are required to pay your homeowners insurance as well as the real estate taxes on the property. Remember that you can use the funds from your reverse mortgage any way that you desire, so if you want to use your reverse mortgage proceeds to pay the taxes and insurance you can. If you are unable to pay the taxes in any way the county tax agent can place a lien on the property and the property. At that point the normal procedures for properties with tax liens in your county would be followed.