Here are a few situations when a reverse mortgage is not a wise choice.
A reverse is not the right loan for short term needs. If you only need the money for a short period of time and are planning on paying it off prior to 5 years, a reverse mortgage is just not an appropriate financial tool. The upfront closing costs will make the cost of the money (APR) non competitive. The minimum recommended amount of time is five years.
Both homeowners should be on title for a reverse mortgage. If your spouse is under age 62 beware of lenders who encourage you to remove them from title. A reverse mortgage must be repaid when the last person on the title moves out of the property permanently or passes away. So, if you were to pass away before your spouse and your spouse was not on title, the reverse mortgage would become due even though your spouse is still living in the property.
Risky investments If you are being encouraged to get a reverse mortgage so that you can use the money to invest in stocks, start-up companies, real-estate, or any other type of investment, you should take a good hard look at what the person encouraging you stands to gain. Chances are they're asking you to take big financial risks at a time in your life when you should be conservative. If your home is your only asset, don't risk it.
Annuities - Unethical life insurance salesmen have on occasion encouraged homeowners to take out a reverse mortgage and then try to sell the homeowner an annuity. That is wasteful because the reverse mortgage has a built-in annuity feature called "term" or "tenure" payment. I'm sure that there are some perfectly good annuity products on the market, but if the person encouraging you to get a reverse mortgage also brings up annuities.... BEWARE! They may have their own financial interest as a priority and not yours!
The above reasons are not the only reasons a reverse mortgage may be the wrong fit for you, a good reverse mortgage professional (like me!) will help you to understand all of the benefits and liabilities of a reverse mortgage for your situation.
Remember, all reverse mortgage borrowers must receive special reverse mortgage counseling from a HUD approved counseling agency before they can begin processing on a reverse. I encourage homeowners to have their trusted advisers or children participate in counseling as well. Your loan officer should not attend the counseling session with you, either on the phone or in person.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.