Reverse Mortgage Cost
Reverse
mortgage loan advances are not taxable, and generally do not affect
Social Security or Medicare benefits. You retain the title to your home
and do not have to make monthly repayments. The loan must be repaid
when the last surviving borrower dies, sells the home, or no longer
lives in the home as a principal residence. In the HECM program, a
borrower can live in a nursing home or other medical facility for up to
12 months before the loan becomes due and payable.
As you consider a reverse mortgage, be aware that:
* Lenders generally charge origination fees and other closing costs for
a reverse mortgage. Lenders also may charge servicing fees during the
term of the mortgage. The lender generally sets these fees and costs.
* The amount you owe on a reverse mortgage generally grows over time.
Interest is charged on the outstanding balance and added to the amount
you owe each month. That means your total debt increases over time as
loan funds are advanced to you and interest accrues on the loan.
* Reverse mortgages may have fixed or variable rates. Most have
variable rates that are tied to a financial index and will likely
change according to market conditions.
* Reverse mortgages can use up all or some of the equity in your home,
leaving fewer assets for you and your heirs. A “nonrecourse” clause,
found in most reverse mortgages, prevents either you or your estate
from owing more than the value of your home when the loan is repaid.
* Because you retain title to your home, you remain responsible for
property taxes, insurance, utilities, fuel, maintenance, and other
expenses. So, for example, if you don’t pay property taxes or maintain
homeowner’s insurance, you risk the loan becoming due and payable.
* Interest on reverse mortgages is not deductible on income tax returns
until the loan is paid off in part or whole.
Be a Savvy Consumer when it comes to a Reverse Mortgage
Be cautious if anyone tries to sell you something, like an annuity, and
suggests that a reverse mortgage would be an easy way to pay for it. If
you don’t fully understand what they’re selling, or you’re not sure you
need what they’re selling, be even more skeptical.
Keep in mind that your total cost would be the cost of what they’re
selling plus the cost of the reverse mortgage. If you think you need
what they’re selling, shop around before you buy.
No matter why you decide to take a reverse mortgage, you generally have
at least three business days after signing the loan documents to cancel
it for any reason without penalty. Remember that you must cancel in
writing. The lender must return any money you have paid so far for the
financing.
Reporting Possible Fraud
If you suspect that anyone is violating the law, let the counselor,
lender, or loan servicer know. Then, file a complaint with:
* your state Attorney General’s office or state banking regulatory
agency, and
* the Federal Trade Commission (FTC). You can do that online at ftc.gov
or by phone, toll-free, at 1-877-FTC-HELP
(1-877-382-4357).
Whether a reverse mortgage is right for you is a big question. Consider
all your options. You may qualify for less costly alternatives. Contact
your accountant for advice.
Get
the Reverse Mortgage facts
before you cash in your home's equity