Upfront fees on a reverse mortgage can be quite high. Typically, loans covered by the FHA - which include the majority of reverse mortgages written in the United States - levy an upfront charge called the service fee set-aside, which is calculated at a rate of $30 or $35 a month projected over the youngest borrower's expected life span. This can easily result in a charge of several thousand dollars, which is immediately tacked onto the loan amount.
Because of that charge and other upfront fees, it is generally recommended that borrowers look for other options unless they plan to remain in their homes for at least two to three years. Also, because reverse-mortgage money does have to be repaid, borrowers who want to leave their homes to their heirs may want to consider other options.
It is important to remember also that reverse mortgages don't erase all of the costs of home ownership. Borrowers will still have to pay their property taxes and take care of all the other costs of property upkeep.
And while reverse-mortgage payments will not affect a borrower's Social Security or Medicare payments, those who receive Medicaid will have to spend any reverse-mortgage funds they receive immediately in order to avoid having them counted as assets.
Because of the complexity of reverse mortgages, borrowers are required to receive counseling before they can sign these loan documents.
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