| When Are Reverse Mortgages Too Expensive? |
| Articles - Retirement |
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How much a reverse mortgage costs is one of the top arguments against doing one. Often, I hear: "they are too expensive". My reply would be: "compared to what"?
How much a reverse mortgage costs is one of the top arguments against doing one. Often, I hear: "they are too expensive". My reply would be: "compared to what"? Let's examine some of the alternatives: One would be that you could move. What is the cost of moving? You can probably get a pretty accurate quote on what it will cost you to move out of your home, but more than the financial cost, what is the emotional cost? Most seniors have lived in a home for years and probably more like decades. Everything is where they want it, and the memories run deep. So is it worth moving and upheaving everything you know? If moving makes sense, there are additional factors to be considered. If you want to keep the home, you will likely make a rental home out of it. There are expenses and hassles of having a rental, like screening tenants and making sure the property is cleaned up after a tenant moves out. You will also have to collect the rents and know how to evict someone. I would imagine that you're thinking; no way, I am not going to rent. I will sell my home. Well if you did your homework and calculated the numbers for what it costs to move, this step will be easy. Take the cost of the movers and then add the real estate commissions to that. The normal commission of 6% of the sales price goes to the Realtors. Plus you will probably get to pay some, if not all, of the closing costs for the buyer. Don't misunderstand me, there are times when selling makes sense. I just want to shed light on all the angles for you. Now we can talk about the fees for doing a reverse mortgage. With fees so drastically reduced, the cost should be somewhere between 2% and 5% of the appraised value of your home. Of course, this will depend on your loan officer to give you the best deal. This means that not only is it less stressful and easier than moving, it is also less expensive. The icing on the cake is; you get to have a home for the rest of your lives. By the way, interest rates are at an all time low, giving you the most access to your equity. The exception: If you know that you are going to move in the next few years, it may not make sense to do a reverse loan. I am not talking about a possibility of moving someday. I mean, if you know you are going to sell this home and move to a warmer, dryer place in 2 years. A definite plan should be in place. If this is the case, you are probably right; it would be too expensive to do a reverse mortgage only to sell shortly after. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Would you like more information on reverse mortgages? A little more education on the reverse mortgage programs available may go a long way towards helping you decide what is best for you. To see what you qualify for, use our FREE reverse mortgage calculator. |