Reverse Mortgage: Everything You Need to Know

PART II

How Do I Get the Loan Amount?

You can get the loan amount in any of the 3 ways you wish to:

• As a lump sum
• As a line of credit
• As regular payments

Needless to say, most of the borrowers go for the ‘line of credit’ option as it is the most flexible debt instrument of the three. As a borrower, line of credit enables you to withdraw the money, as and when the need arises. It helps the borrower to keep a better control on the amount that is actually borrowed and the interest rate so applied.

What’s Not So Good?

There’s nothing called as free lunch. Reverse Mortgage is no different. There’s a price to pay; if not now, later. Here are its downsides –

1. High Fees – It’s going to cost you dear. Reverse mortgage is a loan, a different sort but a loan nonetheless. It should come obvious that there’s an upfront fees to bear. But the fee involved is rather high. And for the right reasons, the lender is after all taking a higher risk as he is lending you, keeping your credit score out of equation.
2. High Interest Rate – When someone takes a reverse mortgage, he/she is not expected to repay the interest till he chooses to stay in his/her home. But this unpaid interest actually accrues over time and adds up in your loan amount, so much so that the closing payable amount becomes high enough to eat up a substantial part of your home’s value.
3. High Stake – More often than not, when the borrower dies, the loan amount is paid back by selling the home. The heirs get the proceeds that remains after the lender realizes the amount owed. So, what the heirs actually get is a significantly low fraction of the total value of the house. This only puts him/her in deeper financial troubles especially considering that it happens at the time when he/she is already compelled to move into a new house. So, if you are planning to leave a legacy, reverse mortgage is not your thing.

Keep in Mind

If after weighing all your options, Reverse Mortgage seems to be your best resort, then you better educate yourself or take proper counseling to be able to make an informed decision. By the way, getting counseled by an approved agency before getting a reverse mortgage is not a choice but an obligation. Here are a few quick tips to consider while choosing a lender.

• Don’t give in to buying pressure by mortgage agents
• Don’t get taken away by any kind of sales lure
• Always ask questions about a boggling feature or hidden costs
• Shop around. Look for ample options, make a comparison and take your pick.
• While comparing the cost of the mortgage, always consider it in its totality, including the quote price, fees and other charges
• If you realize you made a wrong mortgage decision, the ‘right of rescission’ gives you 3 days to cancel the loan

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