An Alternative to Reverse Mortgages
If you are at or nearing retirement age and own a home, you are probably bombarded with offers to refinance your home into a reverse mortgage. A reverse mortgage is exactly what it sounds like—the lender pays you for the equity in your home. You will not have a monthly mortgage payment to worry about, and you can receive payouts monthly, yearly or as a lump sum. The lender owns your home when you sell it or die. It’s an attractive option for seniors without much cash and plenty of wealth tied up in their homes, but it is not always the best, or only, alternative.
If you are considering a reverse mortgage, it is important to weigh the pros and cons.
- It will enable you to stay in your home, so long as you can afford to cover your insurance, property taxes, HOA dues and a yearly mortgage insurance premium to the lender (typically .5% of the balance).
- It will provide you with cash you can use for living expenses, medical bills, and to enjoy your retirement.
- There is no monthly payment.
- The funds are regarded as a loan advance, and not taxable income.
- There are upfront costs, just as with any mortgage. These include the origination fee to the lender, and third-party fees to the title company, appraiser, county recorder, etc.
- In addition, you will pay an upfront mortgage insurance premium, typically 2% of your homes appraised value. That means if your home is valued at $470,000, the insurance premium will be $9400.
- If you default on your property taxes or fail to live in the home as your primary residence for most of the year, you could lose your home.
- The funds could be counted as income against other retirement benefits you receive, such as Medicaid or SSI.
There is another alternative that may better fit your situation. A Multilock Home Equity Line of Credit offers cash advances when you need them. You can make interest only payments for up to fifteen years on any balance you do advance. There is no mortgage insurance premium to pay upfront or yearly. The closing costs are typically about 25% of closing costs for a mortgage. You can choose to refinance when the 15 years is up and start over, or begin a repayment period. Because you pay the interest as you go, only the principal balance remains to be paid when you sell the home or pass on, enabling you to leave your wealth to the next generation.
Questions? Call our Real Estate Lending Department at 503-588-0211 option 4 to speak to Elena or Melody.