There's no doubting the benefits offered by getting a reverse mortgage loan. The lives of many seniors have been transformed, for the better, by this type of loan. Naturally, most want to know how much they can get but many overlook or pay little attention to how much will be owed when it comes time to pay it back. This aspect should be the most important consideration for a senior.
For those who aren't familiar with a reverse mortgage loan in summary, it is a type of loan only available to seniors who are 62 or over, live in their own home and have no mortgage or very little remaining on it. Unlike a traditional mortgage, the lender pays the borrower an agreed amount (usually each month) and the borrower only has to pay it back when the stop living in their home, sell it or die. So, each month a senior gets an agreed amount without worrying about monthly repayments, loosing their home and be able to live in their home for the rest of their lives.
Sounds great, you may think, and it is. The extra money can improve one's retirement years. The extra money can be used to pay for medical or health care, vacations, fixing up the home and even giving it away to family.
But a word of caution: It's all too easy to know how much money you can receive. There are many online calculators that can tell you and you local originator (broker) will be able to also. However, don't overlook the amount that'll have to be paid back.
This type of loan is only payable after a number of years. But it must eventually be paid and it must be paid in one lump sum. The only problem is, no one can tell you for sure, how much will be owed and how much equity would be left in your home.
The amount that is owed depends on certain circumstances, the most important being on how long the borrower has been receiving payments, upfront and closing costs (these vary from lender to lender and program type) and interest rates. The more money the borrower has received the more will be owed. Likewise, interest rates can increase the amount owed.
The equity that will be left in the home also depends on the above but with the added concern of house prices. If they rise then there will be more equity but if house prices fall (and don't ever assume they can't), there will be less.
When you sit down and discuss about getting a reverse mortgage loan with your broker you should ask for illustrations of these what-if scenarios. Your broker should be able to tell you how much would be due to be paid back and how much equity would be left in your home. Get illustrations for both situations; low and high interest rates and low and high house prices, say for in 5, 10, and 15 year's time. When you understand about how much you owe you and your heirs will feel more comfortable about your choice in choosing this type of loan.
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