Refinance or Use Home Equity for a Reverse Mortgage?

Scenario:

I am considering pros and cons of taking a reverse mortgage or refinancing my existing mortgage. I will be 70 in September, and the social security income is one source that I primarily rely on. I do have some savings which I’d like to keep intact in case I need it for medical purposes and the like. Now as I found out a few days ago, if I go for a reverse mortgage, that is going to cost me a lot compared to what I paid for an existing loan. The outstanding balance on the existing loan is around $25000. So which will be the best way to go for – Do a refinance or take out a reverse mortgage?

Solution:

At your age of 70 years, you may find it difficult to qualify for a refinance loan. This is so because the lender or the mortgage company would require you to have a steady flow of income along with a sound credit payment history. And, considering your income source, I guess it’s the social security income that you’re currently relying on.

However, when you go for a reverse mortgage, make sure that you’re paying off any old debt against your home or else you’ll have to pay it down with the proceeds obtained through the loan itself. Moreover, you cannot borrow beyond a certain level of your home equity if you’re going to take a reverse mortgage. This is because the lender offers a loan amount such that the interest on the loan can be included into the value of home equity.

Now, instead of taking a reverse mortgage or a refinance loan, you can also look out for a home equity line of credit that will allow you to withdraw cash as and when required within an allowable credit limit. But here again you will be required to have a certain income limit to get qualified for the loan. So, when it comes to qualifying for a loan, I think a reverse mortgage is the best option for you.

You can select an FHA-insured loan (HECM), a lender-insured or even an un-insured reverse mortgage. It is better that you do some loan shopping in order to compare the costs required for each type of mortgage offer that you are likely to qualify for. However, before you decide to choose a loan program, consider your monthly expenses and any investment option that you’ve been interested in. This will help you to decide whether you can afford to pay off the loan in case it becomes callable.

If you wish to discuss on reverse mortgage and related issues, feel free to ask questions and get the right suggestions through our community forums.