Is there a really good reason for a Reverse Mortgage? What are your plans for the money you receive and is the high cost of these loans worth it? If you are you intending on taking a special vacation trip, this loan is an expense you might better use for some other purpose. Even considering investing the money would cost more than your earned interest.
But if you are getting a reverse mortgage to change your monthly cash flow because you need to, then that may be worth your good earned equity (money) and consideration. Cash flow dramatically impacts quality of life.
Avoid Using Reverse Mortgage Money To Buy A Big Ticket Item
Beware of the slickster sales person who suggests a reverse mortgage for any of the above reasons, or for the purpose of selling you something in exchange for your equity in a reverse mortgage. The pitch could go something like: "Use a reverse mortgage to get the money to buy our product and you'll never have to make a payment on the money you got on your reverse mortgage." This person probably has ulterior motives in trying to sell you something not really needed.
Cutting into your equity and future funds is a serious consideration so you really need to weigh: is the RV or time share worth having if it costs me money for an emergency or being comfortable in a some sort of assisted living facility? Take your time to really think through your purpose for the reverse mortgage; take the time to reconsider.
Reverse Mortgages Are Expensive To Startup - Compare The Cost Versus The Benefit
Starting a reverse mortgage is an expensive endeavor. Closing costs and fees for these mortgages skim 8-10% of your equity right off the top. Then as you take monthly payments each month the debt against your home grows. You need to really consider if this loan is the right move if you are planning on selling your home in the near future.
Your home might not appreciate enough to make up for the amount of start up expenses. If this is the case selling your home would cost you more than if you had not gotten a reverse mortgage in the first place. While this isn't that great from a financial perspective, it could be that the monthly cash flow increase that you get and how that contributes to your quality of life may well off set the financial downside enough to warrant getting the mortgage anyway.
Reverse Mortgage Taps Your Nest Egg For Emergencies And Future Money For Living
Using your home's equity now may prove a disadvantage at a later date. Future emergencies, health care expenses, increasing living expenses, home maintenance costs and shrinking income all need to be considered when tapping into your equity with a reverse mortgage. Homeowners who are not experiencing financial troubles presently should give much thought to delaying that Reverse Mortgage because in the future, a better opportunity may be presented at a lower cost to you.
Consider Other Financial Resources First
Are there any other financial resources available now at less cost? Applying for a Reverse Mortgage loan may not be wise as it may be possible to obtain a less expensive home equity loan or equity line-of-credit if you are able to make monthly repayments. Low cost loans are available from some state and local government agencies for help with real estate taxes or cost of fixing home repairs. The last idea to consider would be selling your home and down-sizing to a lower cost house.
Understanding the way reverse mortgages work is most important. These Reverse Mortgages are not like other type loans and you need to make comparisons to other types of mortgages and other financial options to learn the risks involved before making any decisions. They may not be as beneficial to you as your expectations.
The Bottom Line - Do You Need A Reverse Mortgage?
The bottom line here about a reverse mortgage is that it is not a loan that you take out just for the sake of taking it out. It is a loan that serves a purpose: it helps to alleviate a monthly cashflow problem that a homeowner has. The loan is not designed to be used for financing a trip, or used for investment purposes. Chances are, you may be able to earn more money by taking out some sort of interest only home equity loan, or some other convetional mortgage to get a lump sum if you are only trying to tap your equity for investment purposes.
