Raleigh, NC, May 30, 2007 --(PR.com
)-- Beverly Baskin, president and CEO of the Better Business Bureau of Eastern North Carolina, advises long-term homeowners with equity built from homeownership, that a reverse mortgage can be a good investment. Reverse mortgages allow homeowners to turn their home equity into spendable cash without having to make monthly interest or principal payments.
Under a reverse mortgage, the lender sends the borrower money via a lump-sum payment, a line-of-credit, monthly check or a combination of all three. The homeowner is not required to pay back any of the loan advances or interest until the loan term is over. Generally, no repayment is due until the borrower no longer occupies the house.
Before venturing into a reverse mortgage the BBB, along with the Federal Trade Commission, suggest that homeowners consider the following facts:
Reverse mortgages are rising-debt loans. The interest is added to the principal loan balance each month, because it is not paid on a current basis. The amount you owe increases over time as the interest compounds. Some reverse mortgages have fixed-rate interest; others have adjustable rates that can change over the life of the loan.
Reverse mortgages use up some or all the equity in the home, leaving fewer assets for the owner and their heirs.
There are three types of reverse mortgages — Federal Housing Administration (FHA)-insured, lender-insured, and uninsured — and these vary according to their costs and terms. Check the features of each to select the type that is best suited for the owner’s needs. Before considering any reverse mortgage, consult with family members, your attorney or financial advisor.
Reverse mortgages typically charge loan-origination fees and closing costs. Insured plans charge insurance premiums, while some plans have mortgage servicing fees. You may be able to finance these costs if you want to avoid paying them in cash. But, if the homeowner finances the cost, they will be added to the loan amount and interest will then have to be paid.
Your legal obligation to repay the loan is limited by the value of the home at the time the loan is repaid. This could include any appreciation in the value of the home after the loan begins.
The federal Truth in Lending Act (TILA) is one of the best protections a homeowner has with a reverse mortgage. TILA requires lenders to disclose the costs and terms of reverse mortgages. This includes the Annual Percentage Rate (APR) and payment terms. If you choose a credit line as your loan advance, lenders also must tell you of charges related to opening and using your credit account.
Before signing any contracts for a reverse mortgage, be sure to check on the reliability of the company with the BBB at www.bbb.org. The BBB also provides complaint and dispute resolution assistance for consumers to seek recourse and achieve a fair settlement if they have been treated unfairly in the lending process.
For more specific information about reverse mortgages contact the Home Equity Information Center of the American Association of Retired Persons (AARP) or go to http://www.aarp.org/money/revmort/.
About the BBB of Eastern North Carolina:
The Better Business Bureau of Eastern North Carolina is a 501 (c)(6) not-for-profit corporation serving 33 counties in Eastern North Carolina. The organization is funded primarily by membership dues from more than 3,000 local business and professional firms. The BBB promotes integrity, consumer confidence and business ethics through business self-regulation in the local marketplace. Services provided by the BBB include, reports on companies and charitable organizations, general monitoring of advertising in the marketplace, dispute resolution services, and consumer/business education programs. All services are provided at no cost to the public, with the occasional exception of mediation and arbitration. Visit www.bbb.org.