Your Alternatives to Reverse Mortgages
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC
No doubt you've seen the never-ending TV commercials touting reverse mortgages, those in which Henry Winkler or Fred Thompson appear.
And reverse mortgages look like a reasonable way to increase your income while you remain in your home. In fact, only a few years ago, no one had ever heard of a reverse mortgage. But now they're all the rage.
That does not mean they are problem-free. Reverse mortgages can be costly and an elderly homeowner may see only 30 to 80 percent of the value of their home through a reverse mortgage. You also face closing costs and service fees. And some reverse mortgages carry fixed interest rates and others are adjustable.
AARP outlined several other key characteristics of reverse mortgages. Please keep these in mind when considering whether a reverse mortgage is right for you:
-- Since you remain the owner of the home, you are still responsible for all taxes, insurance, maintenance and repair.
-- You can never owe the lender more than the value of your home at the time the loan is repaid.
-- Reverse mortgage loans must be repaid, either in cash or by transferring the deed to the home, when you die, move away or sell the home.
-- Reverse mortgages come in a wide variety of options, shapes and sizes. A reverse mortgage that worked for your neighbor may be the worst thing for you.
Now, how do investors approach reverse mortgages? When investors see an elderly couple with equity in their homes, they start salivating. They want that equity for themselves -- especially if the home is in an area where its value is expected to climb.
The investors arrange for the couple to get a reverse mortgage. This means they get to remain in their home with the title still in their name until they pass away. The investors then keep the home and sell it for a profit.
Make Sure You Consider These Alternatives to Reverse Mortgages
Refinance Your Home: With interest rates low, you could refinance your home and, if necessary, make the payments using your social security, pension and withdrawals from your IRA. Even so, the cost likely would be less than renting another home or apartment. Best of all, you would keep the equity in your home in case you decided to sell it and downsize your living area - or move into an assisted living facility.
Set Up a Home Equity Line of Credit: Setting up a home equity line of credit (HELOC) is a good idea even if you don't need the money right now. Then you could simply draw down the equity in your home as you needed money. This also helps assure that you have money available in case of an emergency.
Sell Your Home and Move Into Something Smaller: By doing this, you could move into a less expensive living unit. Then you invest the money from your home sale into investment vehicles that pay dividends and have the potential for growth. Or you could move to a home closer to your children and grandchildren so you could help them and they could help you whenever necessary. In fact, you might think about selling your home to your children.
Before you do anything, make sure you consult with an attorney well versed in financial matters so you get the situation that works best for you and your family.
In conclusion, don't get drawn into the free magnifying glass or free road atlas that you'll receive for looking into reverse mortgages. If they're giving stuff away free, you can bet that it's to distract you from the other ways they're getting their hands on your wallet.
If you are a senior in economic distress and are having trouble paying your bills - if you have credit card debt, owe back taxes or are being hounded by creditors, and please call or send me an e-mail. I may be of assistance. I am a Chicago bankruptcy and financial rescue lawyer, serving clients throughout the state of Illinois. I will be happy to answer your questions about reverse mortgages and discuss the alternatives that might be more beneficial for your particular financial situation. If you need to use the equity in your home to get cash to pay your bills, there are other options.