kc bob: Fonzi Scheme

Seems like every time that I turn the TV on I catch Fonzi or the guy from Law and Order doing commercials for Reverse Mortgages. So I thought that I might share a few thoughts on the topic from a post by Laura Agadoni:

What It Is: A reverse mortgage takes the equity in the home once someone owns it or almost owns it and converts that equity back to cash given to the homeowner in various ways. The homeowner can choose to receive monthly payments, get money through an equity line that she can tap whenever she needs to, receive a one-time lump sum payment or some type of combination.
Rip Offs: The FDIC warns that it’s not uncommon to enter rip-off territory with a reverse mortgage and that some unscrupulous companies charge the borrower for unnecessary services.
High Costs: Lenders like to do reverse mortgages because the upfront costs are high, making the loans profitable in the short term. All mortgages involve closing costs, which are various fees and expenses above the cost of the property, such as deed filing and title searches. However, these costs are significantly higher with a reverse mortgage compared to closing costs of a traditional mortgage.
When Not To Use: The FDIC does not advise people to take out a reverse mortgage if they plan to leave the home in less than five years. It’s not the answer to cover small monthly expenses, either. The fees associated with the reverse mortgage process, which could be thousands of dollars, are too high to justify unless you plan to stay in your home for years to come, and you need the money to live on
No Home Left: Your mom or dad has to pay mortgage insurance with a reverse mortgage. This is to protect the lender in case the value of the home should drop during the course of the reverse mortgage or if the reverse mortgage is held for such a long time that the interest exceeds the home’s value. Of course, if that happens, that is bad news for any heirs, as well, because there will be no or little house left to inherit.