Common Reverse Mortgage Mistakes

The American Indian Traditional Code of Ethics says, “special respect should be given to elders.” But in our society, getting older is anything but desirable, as seniors flock to plastic surgeons to help their faces and bodies defy the aging process. Marketers target 18 to 34 year olds as the only money worth attracting.

One advantage that the over-62 crowd has is the ability to take out a reverse mortgage if they need money and have equity in their homes. If you’re interested in taking advantage of this mortgage vehicle created especially for seniors, avoid the following mistakes.

Early bird doesn’t always get worm

The amount that you’ll be eligible for depends on your age – the younger you are, the less money you’ll qualify for. Although you can apply for a reverse mortgage once you turn 62, the amount available may be too small for your needs. Wait as long as possible before taking one, as the money you can tap increases with your age.

Fearing loss of benefits

People avoid reverse mortgages because they fear it will have a negative impact on their benefits from government programs. Here’s the truth — a reverse mortgage is a “loan,” not “income,” so any programs without income restrictions will not be affected. It has no impact on your Social Security or Medicare benefits. However, it could affect Medicaid and Supplemental Security Income, because they have income restrictions.

Lack of prioritizing

No matter which way you slice it, a reverse mortgage has a hefty price tag. You could be hit with $6,000 in origination fees, and costs for a survey, appraisal, inspection, title insurance, and recording. Therefore, a reverse mortgage should only be used as a last resort, after all other possible venues for income have been exhausted.

Short-sightedness

Only consider a reverse mortgage if you plan to stay in your home for a long time. As mentioned above, the fees are steep, and need to be averaged over the long-term to make it worthwhile. If there’s any chance you’ll need to move in less than five years, consider other means of pulling equity from your home, like a home equity line of credit (HELOC).

Getting scammed

There’s nothing like a good con artist to seize an opportunity. Seniors in need of money are easy prey for these smooth talkers, so be on your guard. Be wary of people charging a fee to assist you. Be cautious if you go to reverse mortgage seminars – some are legit, but others are fronts for scams. Use a lender that’s approved by the Federal Housing Administration (FHA). You’re required to be counseled by a HUD-certified reverse mortgage counselor, so don’t give anybody any money before you have your counseling session.

The American Indian culture has always known that “elders are wise.” Use your wisdom to guide you in the reverse mortgage process, and you can use the funds to make your golden years great – even if it means getting a little nip and tuck in the process.