LOOK CLOSELY AT REVERSE MORTGAGES

What is a reverse mortgage? It is a loan against the equity in a house available to those over 62, who own their own home outright or have a small mortgage balance, and occupy the property as their principal residence.

Beware of costly closing costs and other expenses. Adjustable interest rates can go up within the first few months of the loan. Origination fees and mortgage insurance premiums can run as high as two percent. Borrowers are responsible for service release premiums, loan correspondent fees, recording fees, and appraisal fees. Remember these fees are in addition to homeowner's insurance, property taxes, maintenance, and home owner's association dues that people may not take into consideration when getting reverse mortgages. Such costs can force seniors to take out bigger loans than they originally planned.

Reverse mortgages can impact heirs. These mortgages give cash to seniors based on the home's equity and do not have to be repaid until the borrower sells the house, dies, or moves out. An heir would have to pay the debt at the senior's death in order to keep the property. Children with elderly parents must be vigilant. Brokers have been known to loan money to seniors who do not have the capacity to enter into such agreements. They may not ask children whether their parents have the capacity. The elderly who do not have the capacity to enter into mortgages and other legal agreements can be easily misled.

Investigate other cheaper loan alternatives, such as a conventional second home mortgage or a home equity line. Reverse mortgages are considered high cost loans and are not suitable for those who are on a tight budget.

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