) This insurance is paid at a fixed 2% of the loan value or can be financed in the mortgage at 2.5% of the mortgage.
Other look-alike programs ask that the loan be paid back during the life of the borrower, and this is entirely unlike the traditional HECM program, designed to allow the elderly an additional source of income during their lifetime.
The pluses of reverse mortgage is that the individuals may remain in their home, living much like they have in the past but be able to support themselves better and maintain the home more easily. Many individuals in retirement that outlive their savings and/or pensions tend to feel trapped to sell the only asset they have, a low or no mortgage home as a result of limited resources for medical care and increased cost of living. The Reverse mortgage program if done right can greatly help such individuals, while they are living stay in their home for as long as possible instead of selling it paying a greater amount that they would in their home to live. Individuals can live in familiar surroundings and reap the benefits of the low cost mortgage they have already paid off. There are actually a great many benefits to such loans, not the least of which being the individuals rarely if ever qualify for additional mortgages, (2nd mortgages) as younger people would if in the same predicament or home equity loans to help maintain the property to a livable and potentially sellable state.
The benefits may outweigh the costs but there are downsides of the loans, which will be discussed next.
One of the serious downsides of reverse mortgages is that the loan will likely not be resolved unless the home is sold, and this depends a great deal on the length of the loan, and the amount that was paid after the loan was signed, either in lump sum or payments. What this means for those who choose to sign such loans is an inheritance concern, where unless individuals or multiple family members are capable of securing a loan or buying the loan outright upon the death or evacuation of the elderly borrower(s) from the home will need to be sold to cover the debt and inheritance is paid only after such debts have been covered, if any amount remains.
Seeking to achieve these kinds of loans from non-HUD programs, and programs that are not insured by the federal government is dangerous as the loan terms can be excessively complicated, rife with additional fees and charges and could do more harm to future inheritors than the traditional, legitimate forms. The loans can also have adverse effects on government benefits received by the individual and this must be taken into consideration when determining the value of the loan to be sought. In short no reverse mortgage or other loan should be entered in without the consultation of a valued financial advisor and without the knowledge of primary potential inheritors, who may need to understand how to resolve the loan at the close of its terms, i.e. when both borrowers die or when they no longer live within the home, which can occur prior to the former. It is essential that anyone entering into a reverse mortgage understand that the HECM program is available and likely the best possible option as there are limited fees and contract variations that can be offered through this program as it is a highly structured plan of great value.
Carr, M. Anthony. "Reverse Mortgages Can Trap the Unwary." The Washington Times 10 Sept. 1999: 13.
Cocheo, Steve. "Reverse Mortgages Shift Up a Gear." ABA Banking Journal 88.10 (1996): 77.