Rever Mortgage Not Equal To Giving Up Your House

Looking for a way around the continuing credit crunch, more older people are exploring reverse mortgages, which allow homeowners 62 or older to borrow against their equity.

With reverse mortgages, lenders and brokers generally don’t consider credit history. Instead, they look at the applicant’s age, any existing mortgage and the home’s value.
“Many seniors have been able to use reverse mortgages to avoid delinquency or foreclosure, and to help fund their retirement.

Part of the reason that reverse mortgages have gained in allure, brokers say, is that it has become more difficult to sell a home and move to a less expensive one. Also, some elderly homeowners have been unable to refinance their mortgage or qualify for a traditional home-equity loan because they cannot meet tighter credit standards.

But reverse mortgages have their drawbacks. For one thing, they can be expensive, even with the recent caps on fees, which is why they make sense only for those planning to stay put for a while.

Total costs run from around $7,000 to $20,000. In addition to the regular mortgage closing costs, there is an origination fee (capped at $6,000). There is also an upfront insurance premium equal to 2 percent of the home’s appraised value or lending limit (up to $625,500), which protects borrowers if anything happens to the lender and guarantees that the total debt owed will never exceed the home’s value.

There were misconceptions about reverse mortgages — a lot of people thought they were giving up their houses, which is simply not true.

Article above provided by NY Times