news-record.com

Reverse mortgages are strongly promoted by many companies and brokers. It’s an exceptionally profitable product for them to sell when all goes well. A reverse mortgage converts home equity into cash in several different ways, the most popular being a continuing flow of monthly payments (loaned funds).

These mortgages can be very beneficial to certain senior homeowners, but they are not well understood by most. There are significant pros and cons in signing for a reverse mortgage.

The benefits are always touted by lenders and their marketing reps. But the negative factors are seldom mentioned or understood by potential borrowers. Here are a few of the downsides.

Upfront costs are very high. These costs are usually paid in cash or out of the home’s equity at closing. As with conventional mortgages, reverse mortgage lenders make money the old-fashioned way: through interest, origination fees and points. The interest rate varies according to the market. However, closing costs are significantly higher with reverse mortgages, according to a report from BankRate.com.

It should also be noted that reverse mortgage borrowers continue to be responsible for real estate taxes, conventional homeowners insurance, home repairs, and often the added burden of mortgage insurance.

In some cases, the borrower may no longer qualify to participate in subsidized programs with the added income from a reverse mortgage.

The financial strength and consistency of the company offering the reverse mortgage is an important consideration. An increasing number of companies are pulling out of this business niche.

The Mortgage Graveyard, hosted by MortgageDaily.com, provides details on failed or closed mortgage-related firms. A recent analysis shows that three major companies offering reverse mortgages are pulling out of the reverse mortgage lending market, it was noted in a DSNews.com report. Together, these three lenders accounted for about 46 percent of the market for Home Equity Conversion Mortgages, the Federal Housing Administration’s reverse mortgage program.

The study noted that one factor impacting the dwindling sector is the possibility that missed payments of taxes or insurance by a borrower could trigger a default on federally insured reverse mortgages.

Again, a reverse mortgage can be a good thing for some seniors, despite the negative factors. But it’s important to know and consider all the facts before signing up for the program.

Jim Woodard writes for Creators Syndicate, www.creators.com