If you are considering recommending a reverse mortgage as an option to provide extra financial security for a loved one, or to cover long-term care costs, there are some considerations to think about before committing. As you would when considering any type of financial planning for your elderly loved ones, it is always best to enlist the help of an elder law attorney or financial planner. Below are a few points to consider in regards to reverse mortgages.
Reverse Mortgage Fees
The fees for reverse mortgages can be high. The upside is that these fees are typically rolled into the loan itself, and not paid up front. Typically, a reverse mortgage costs thousands of dollars more than a traditional mortgage. If you want to explore lower cost options, the FHA reverse mortgage program from the U.S. Department of Housing & Urban Development, or HUD, may be a good option.
Reverse Mortgage Interest Rates
Reverse mortgages always come with an adjustable interest rate, that may be adjusted monthly or yearly. Annual rate adjustment loans typically offer a lower loan amount, but have a cap of 2 points per year. Monthly rate adjustments are capped at 10 points, a significant difference. The interest will not impact your monthly payment amounts, should you choose to receive your loan monthly.
Think Carefully Before Entering into a Reverse Mortgage
It’s important to remember that entering into a reverse mortgage may mean that the lender owns all of the equity by the time the house is sold. While an influx of cash may seem to fix all of your loved ones problems, it is essentially dipping into the available inheritances of heirs.
