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Reverse mortgages bring risks and benefits for New York seniors

Reverse mortgages can be great sources of income for senior citizens in New York. However, reverse mortgages can also have significant down sides.

If you are considering a reverse mortgage, it is important to make sure you fully understand the terms and conditions of the contract. Prospective borrowers should always have a reverse mortgage reviewed by a New York real estate lawyer before closing on the loan.

With that said, taking some time to learn about the potential pros and cons of a reverse mortgage can help you decide if a reverse mortgage is right for you.

What is a reverse mortgage?

Reverse mortgages are home loans that give borrowers a cash payout in exchange for a portion of the equity in the home. Reverse mortgages are only available to borrowers who meet the following qualifications:

  • Are age 62 or older
  • Own their homes outright (or owe only a small amount on their mortgage)
  • Use the home as their primary residence

Reverse mortgage borrowers can choose to take their payout in the form of either a lump sum or regular monthly payments. In exchange, the lender reclaims the loan amount from the home's equity when the borrower dies, moves out or sells the home.

Reverse mortgage downsides

Reverse mortgages can be a smart move for seniors who need extra income and are not concerned about passing on their home to their heirs. However, they can have some unexpected downsides. Reverse mortgages should be approached as carefully as any other New York real estate transaction.

One of the most serious risks lies in the possibility that borrowers could lose their homes. Although borrowers do not have to make loan payments, they are still responsible for paying property taxes and insurance premiums. Failure to do so can result in foreclosure. In addition, if only one partner in a married couple is listed on the reverse mortgage, the other could be forced to vacate the home when the borrower dies.

There is also a concern that borrowers might exhaust their resources. The Consumer Finance Protection Bureau cautions seniors against using up all of their home equity in one loan, since they might not have anything left over if a major unexpected expense arises.

Finally, reverse mortgages can be quite expensive. For example, federally-insured reverse mortgages charge a 2 percent insurance fee on the full value of the home, regardless of the amount of the loan. Most lenders also charge origination fees ranging between $2,500 and $6,000. In addition, borrowers are responsible for other closing costs such as appraisal fees, which are deducted from the principal at closing. Interest fees and monthly servicing fees are deducted from the principal each month and are paid back at the time the loan is satisfied.

A real estate attorney can help

None of this is to say that reverse mortgages are a bad thing. In many cases, they can provide significant benefits that are worth the risks and the costs associated. However, seniors should never take out a reverse mortgage loan without having it reviewed by an experienced professional. If you are considering a reverse mortgage, talk with a New York real estate attorney who can help you understand all of the terms and conditions.

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