Elliott
Elite Member
- Joined
- Apr 23, 2002
- Professional Status
- Certified General Appraiser
- State
- Oregon
Reverse Mortgage - Few negative*issues.
June 2, 2008 by reverseamortgage
There are a few negative issues with reverse mortgages.*
* - There is a ceiling on the amount that can be borrowed.*
* - If you are on SSI or Medicaid you can lose benefits if you don’t spend down your ***********entire loan amount every month.*
* - The upfront closing costs and loan origination fees can be 8 percent to 10 percent of the loan limit. That’s equivalent to paying 8 to 10 points on a conventional mortgage loan.
It is important to realize that, even though you don’t have to repay the loan until you leave the house, you’re still incurring debt. If your home value appreciates fast enough — a big “if” these days — that appreciation could offset some of your borrowing costs. But in most cases the amount you owe (your loans plus interest) grows over time, while your equity declines. And don’t forget that you’re still responsible for the ongoing costs of maintenance, insurance and real estate taxes.
*- Your kids *might be upset to discover the bank owns a substantial portion, or even all, of your home. Be sure to talk to your heirs if you plan to take out a reverse mortgage. Granted, they’ll want what’s best for you in the long run, but it’s always wise to avoid surprises.
A reverse mortgage should never be the centerpiece of your retirement plan, but it can make sense for some people.
*** Remember - the loan limits and fees vary by provider, so be sure to research them thoroughly
http://reverseamortgage.wordpress.com/
NY Times article.....
For example, with the F.H.A.'s tenure plan and an interest rate of 7.35 percent, a 77-year-old borrower whose property is worth $120,000 would receive a monthly payment of $498.74 and would incur closing costs of about $6,000. If such a loan were held for only two years the borrower would have received $11,970 in monthly payments and would owe the lender $20,317 -- which includes principal, interest and costs of the loan. That would result in an effective annual interest rate -- because the closing costs are included in computing the cost of the loan -- of 47.33 percent over the two-year period.
If the same loan were held for 10 years, on the other hand, the borrower would have received $59,850 and the amount owed would be $108,105. The effective annual interest rate, however, would be 10.06 percent because the costs -- again, as in the previous example, included in calculating the effective interest charged -- would have been spread out over 10 years. Knowing the effective annual percentage rate, Ms. Barriere said, allows borrowers to match ''apples with apples'' when comparing one lender's mortgage with another's. ''That makes very clear to the borrower that you get the most bang for your buck the longer you stay in the property,'' she said
June 2, 2008 by reverseamortgage
There are a few negative issues with reverse mortgages.*
* - There is a ceiling on the amount that can be borrowed.*
* - If you are on SSI or Medicaid you can lose benefits if you don’t spend down your ***********entire loan amount every month.*
* - The upfront closing costs and loan origination fees can be 8 percent to 10 percent of the loan limit. That’s equivalent to paying 8 to 10 points on a conventional mortgage loan.
It is important to realize that, even though you don’t have to repay the loan until you leave the house, you’re still incurring debt. If your home value appreciates fast enough — a big “if” these days — that appreciation could offset some of your borrowing costs. But in most cases the amount you owe (your loans plus interest) grows over time, while your equity declines. And don’t forget that you’re still responsible for the ongoing costs of maintenance, insurance and real estate taxes.
*- Your kids *might be upset to discover the bank owns a substantial portion, or even all, of your home. Be sure to talk to your heirs if you plan to take out a reverse mortgage. Granted, they’ll want what’s best for you in the long run, but it’s always wise to avoid surprises.
A reverse mortgage should never be the centerpiece of your retirement plan, but it can make sense for some people.
*** Remember - the loan limits and fees vary by provider, so be sure to research them thoroughly
http://reverseamortgage.wordpress.com/
NY Times article.....
For example, with the F.H.A.'s tenure plan and an interest rate of 7.35 percent, a 77-year-old borrower whose property is worth $120,000 would receive a monthly payment of $498.74 and would incur closing costs of about $6,000. If such a loan were held for only two years the borrower would have received $11,970 in monthly payments and would owe the lender $20,317 -- which includes principal, interest and costs of the loan. That would result in an effective annual interest rate -- because the closing costs are included in computing the cost of the loan -- of 47.33 percent over the two-year period.
If the same loan were held for 10 years, on the other hand, the borrower would have received $59,850 and the amount owed would be $108,105. The effective annual interest rate, however, would be 10.06 percent because the costs -- again, as in the previous example, included in calculating the effective interest charged -- would have been spread out over 10 years. Knowing the effective annual percentage rate, Ms. Barriere said, allows borrowers to match ''apples with apples'' when comparing one lender's mortgage with another's. ''That makes very clear to the borrower that you get the most bang for your buck the longer you stay in the property,'' she said
Last edited:
