'Mellody's Mail': Reverse Mortgages

The costs associated with getting a reverse mortgage vary depending on the product selected. However, costs typically include the origination fee (which can be financed through the reverse mortgage), an appraisal fee and other charges similar to those associated with a regular mortgage. Also, keep in mind, that because a reverse mortgage allows a homeowner to continue living in their home, they will still be responsible for paying for property taxes, insurance and repairs. If these payments are not maintained, the loan could become due in full.

A borrower can receive payments from a reverse mortgage in one of four ways: all at once in a lump-sum payment; fixed monthly payments; a line of credit or a combination of any of these. The most popular option, selected by 60 percent of borrowers, is the line of credit which allows a person to draw on the loan at any time money is needed.

Advantages and disadvantages of reverse mortgages: There are several advantages to a reverse mortgage. For starters, the money received from a reverse mortgage can be used for anything — daily living expenses, medical bills, prescription costs, home repairs, etc. Furthermore, this income does not affect regular Social Security payments or Medicare benefits. Additionally, lenders cannot foreclose on the loan for the life of the borrower, which makes reverse mortgages an important financial cushion for some seniors.

The downsides of such a loan are that it may affect eligibility for state and federal government assistance programs, such as Medicaid. In addition, because the borrower makes no monthly payments, the amount owed grows larger over time, meaning there will be less money left over once the home is sold. As a result, your ability to pass along your home as an asset to your heirs is affected.

That said, if entered into with a full understanding of the pros and cons, reverse mortgages can be extremely helpful for seniors who need extra money to cover their expenses.