Real Estate Matters: Readers comment on reverse mortgages, we respond
There are certain real estate topics that seem to generate a fair amount of excitement and interest among our readers. One of those is a reverse mortgage.
A reverse mortgage allows homeowners aged 62 and older to convert their home equity into either a single lump sum or regular payments, which can be used to fix up the property or travel or even as a supplement to Social Security or other retirement income. Sometimes, a reverse mortgage is used to eliminate a traditional mortgage and free up cash flow for the homeowner.
Unlike a traditional mortgage, where you make regular monthly payments to pay off the loan over a specific period of time, a reverse mortgage requires no monthly payments. The amount due rises over time, and is paid off in full when the home is sold or the owner no longer lives there full-time.
Our recent article on reverse mortgages certainly got the attention of our readers. We’d like to share some of their comments (which have been edited for clarity and length):
Comment: I almost got a reverse mortgage with my wife a few years ago. The thing that stopped us was I had a low credit score and the amount of money we’d have access to in the line of credit was pitiful. It was also expensive: The only way there would be any house value left for heirs after 15 years would be if the real estate market was on fire. We could literally find no one, out of five financially knowledgeable people we spoke with, that would speak positively about reverse mortgages. In some circles, those who get reverse mortgages are considered “poor.”
I think financial advisors who work with clients nearing retirement should strongly encourage them to get a “cash out refinance” before they stop working (and lose the income). This would avoid the pressure to take out a reverse mortgage and leave their clients in a stronger financial position. This is what we ultimately did.
This is a far out idea (for a lot of reasons), but in comparison with getting a reverse mortgage, it may be better to take a job long enough to qualify for “cash out refinance” (if your health allows it).
Comment: I looked into a reverse mortgage that I saw advertised on television. I received the CD disk from that company by mail.
The CD disk was all advertising, with no specifics or details about reverse mortgages, and nothing about financials, dollar loan amounts and costs. I had to call them to get the details. On the telephone, I told them that I wanted a reverse mortgage on my house, which was valued at about $200,000.
I also informed them that I am 68 years old, that my FICO credit score is 810, and I fully own the house with no outstanding mortgage. They told me that the maximum loan they give is 50% of the value of my house, or around $100,000. They also let me know that the cost to get the loan would be about $15,000. Therefore, the net amount I would receive from a $100,000 Reverse Mortgage was $85,000.