Reverse-Mortgage-Truth.com

Put Off Making a Decision
Probably the most common decision is to not make one! For fear of making the wrong decision, or sometimes for other reasons, you might think it's better to "wait until later" to get a reverse mortgage.

There are some obvious and not-so-obvious drawbacks this choice. It may be just a matter of time until you run the risk of hitting a money-crisis. You may have a little financial cushion and currently are able to make ends meet. Then an unexpected expense arises - emergency dental work, new and expensive prescription drugs, car or house repairs, or (something positive such as) an opportunity to help the grandkids. Suddenly, for lack of planning ahead, you'll be left with one of the alternatives described above. Or you must make an unpleasant choice: forego that which is much-needed or desired, or deplete the last of your savings or available credit.

There are drawbacks to putting off a reverse mortgage. First, it can take some time to obtain. The average closing time in the industry is 60 to 90 days, but it can go much longer if there are some obstacles. I have seen it take over 6 months in some cases!

More importantly, as interest rates rise, or home values fall, the amount of money available from a new reverse mortgage shrinks. A client of mine lost over $40,000 by waiting just 6 months! The only way of protecting yourself against rising interest rates or falling home values is to apply for the reverse mortgage and lock-in your cash benefit. Once you have applied and after it closes, the amount of money available to you is guaranteed. Your benefits cannot be reduced for rest of your life! Moreover, if the home equity line of credit is chosen, the unused portion starts growing at over 5% (like a savings account) from the beginning, giving you more money the longer you have the reverse mortgage.

You might be putting a reverse mortgage because you think that it will be there when you need it. But this is not necessarily so. Remember that most reverse mortgages are insured by the Federal Housing Authority (FHA), which is run by HUD, and whose activities are regulated by Congress. There is a cap on the total number of reverse mortgages that Congress will allow the FHA to insure. In 2005, the industry ran up against that cap and were almost were forced to stop issuing the Federally-insured reverse mortgage. Fortunately, a temporary increase on the cap was slipped into an appropriations bill by a congressman at the last minute and the reverse mortgage received a new lease of life. A cap remains today and so the availability of the program must be continually re-approved by congress. And with the dramatic increase in the number of reverse mortgages being insured by the FHA, the burden could cause them to stop issuing the HUD/FHA reverse mortgage so it is not there when you need it.

So whether or not you need the money now, in most cases, the earlier you get the reverse mortgage the better off you will be. Thinking, "I'll wait until later" may not be the best decision.

Tomorrow we’ll discuss the potentially most dangerous alternative to the reverse mortgage.

There are many seniors over 62 on a fixed income that need more cash for living expenses, have a desire for a better lifestyle or decide that they want to help out a relative. When they tell someone about it, they receive all kinds of advice, some good and some uniformed. Frequently, they choose an alternative to the reverse mortgage without considering all the costs and consequences. In this blog series, we’ll take a look at the most common alternatives to the reverse mortgage.

Selling Your Home
One alternative is to sell the home and move, pocketing the proceeds. A senior could downsize and buy a cheaper home, choose to rent an apartment, or move in with her kids. Seniors may be tempted by the promise of huge sums of cash in exchange for their home and might choose to sell rather than do a reverse mortgage.

But don't make that decision without first adding up all the costs. For the hard costs, you'll generally pay 5-6% of the sale price to real estate agents, you may owe hefty capital gains taxes on the sale, and you'll probably pay professional movers. If you downsize, your next home may have much higher property taxes because it will cost much more than you originally paid for your current home. You may need to spend a lot of money to fix up your existing home in order to sell it and/or to fix your new one to make it livable.

There are also intangible costs to consider. You'll have to find a new home where you will really be satisfied, hire a real estate agent and host open houses, and sort through and move everything that you own. You may also be moving away from all that is familiar such as friends, hospitals, pharmacies, and other services. If you're planning to rent rather than buy another home, you're losing out on future home appreciation and will be paying ever increasing rental rates. As far as moving in with the kids, I think the intangible costs are self-explanatory.

Selling your home may be a better alternative to the reverse mortgage, but make sure to add up the costs first. We’ll evaluate another common alternative tomorrow.