While you do not have to pay back the money associated with a reverse mortgage, what exactly is the cost of a reverse mortgage and what fees are applied with this type of mortgage?
A reverse mortgage works very differently from a traditional, or "forward" mortgage. In a traditional mortgage, the costs and fees associated with the mortgage come mostly from broker fees and the percentage that you must pay on your loan. Depending on what sort of mortgage you choose, your interest costs can be fixed for the term of your loan, or variable - and the fees surrounding the origination of your loan can vary from lender to lender. The cost of a reverse mortgage works quite differently.
You will not have to pay taxes on the payments you receive from a reverse mortgage, as the payments are coming from your own home's equity. You will also not find that your Medicare or Social Security benefits are affected by getting a reverse mortgage. That being said, there are plenty of other costs associated with this type of mortgage. Most brokers will charge an origination fee - a fee to start your payments from this mortgage as well as for finding you a lender who is willing to finance your reverse mortgage.
The cost of a reverse mortgage also becomes apparent when the last surviving cosigner of the mortgage dies. When this happens, or if the last cosigner decides to move or live outside the home for more than 12 months, the reverse mortgage must be repaid in order to retain the home. There is interest charged at this point, based on the amount of payments forwarded to the reverse mortgage holder. This may mean that the survivors must pay more than the actual amount received by the mortgage holder in order to get the home back.
A final cost associated with a reverse mortgage is actually a set of costs that every homeowner is responsible for - property taxes and all associated fees with owning the house. While your equity in your house goes down as you receive payments on your reverse mortgage, you do not end up having to pay less based on this value. You continue to have to pay taxes based on the full equity value of your home, meaning that you will not get any sort of deal from a reverse mortgage tax-wise.
The cost of a reverse mortgage may not seem as steep as a loan or other type of mortgage at first, but you may end up regretting this choice in the long term. Remember, not all costs of reverse mortgages are apparent right away.
About the Author
Barry Waxler provides alternatives to a reverse mortgage that help you avoid waisting the equity in your home. Visit him at UFCAmerica.com.
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