Reverse mortgage applicant 'shocked' by up-front fees
When are loan costs worth the risk?
DEAR BOB: I am currently applying for a reverse mortgage. But I think you should warn readers about the high up-front fees so that it is not a big shock, as it was to me. The closing costs in my situation will be almost $15,000. But in my case it is worth paying these expenses for a lifetime of tax-free income? – Ruth G.
DEAR RUTH: Yes, the up-front loan fees to obtain a senior-citizen tax-free reverse mortgage seem high. But they really are quite reasonable if you stay in your home for more than five years.
Before you obtain your reverse mortgage, the lender must provide you with a Total Annual Loan Cost (TALC) disclosure chart based on two years, your life expectancy, and even beyond your expectancy. If you keep your reverse mortgage only two years, the annual interest rate, including up-front loan costs, will usually be at least 12 percent, often more. But at 10 years, your annual cost typically drops to a much more reasonable 6 percent or 7 percent interest.
That's why I constantly advise against obtaining a reverse mortgage unless you plan to stay in your home at least five years. There are so many reverse mortgage advantages I can't list them all here. A great new book explaining this topic is Tom Kelly's "The New Reverse Mortgage Formula," available at bookstores, public libraries, and www.amazon.com.
Source: Bob Bruss
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