Tax and Money Tip of the Week: Young Seniors – Be Wary of Reverse Mortgages | November 28, 2012 | No. 119
Reverse mortgages can be tempting to people whose retirement savings and home values have dropped significantly in the last couple of years. However, if you are in your 60s, you may want to carefully consider the pros and cons.
While reverse mortgages are available to homeowners who are at least 62 years of age, they are questionable for anyone younger than 70.
– Up front closing costs (including mortgage insurance of approximately 2% of appraised value) on reverse mortgages are generally higher than conventional mortgages.
– Since no payments are required to be made on loan, interest is treated as an additional advance on the loan and can balloon quickly.
– Mortgage insurance is required annually, normally 1.25% of loan balance
– Taxes and insurance must be kept current, or else loan could be considered in default
Even if you are in your 70s, consider a reverse mortgage as a “last resort”.
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