Florida Mortgage Refinancing vs. A Reverse Mortgage

The Sunshine State is home to many retirees. That’s why the following question and answer (paraphrased below) asked of Bankrate.com’s Don Taylor, could be relevant to many readers:

Question: I am checking out whether to refinance or take a reverse mortgage. I will be 79 in January and live on my Social Security income. If I take the reverse mortgage it will cost me over $10,000 in closing costs plus the payoff balance on my existing mortgage, which is about $22,100. Which way do you thing would be best for me?

Answer: You might have a problem qualifying to refinance your mortgage based on your income. Beyond having good credit, the lender needs to see an income stream large enough to cover the payments on the Florida mortgage loan.

A reverse mortgage gets past that issue because there are no contractual payments on it. The interest expense on the money borrowed goes against the equity you have in your home. For that reason, you also don’t get to borrow as much because the Florida home loan lender needs to allocate a portion of your home’s equity to estimated interest expense.

As you found out, closing costs on a reverse mortgage are very expensive when compared to closing costs on a traditional first mortgage loan. One way to try to hold these costs down is to shop the three main reverse mortgage loan programs and compare costs. If you do this in a concentrated time period of a few weeks, it won’t negatively impact your credit score because it’s obvious that you’re doing a little comparison shopping.

Also: You can do some clever things with a home equity line of credit, but face qualifying on the basis of your income for that type of loan, too.

From what you’ve told me, and you didn’t tell me how much equity you have in your home, I think a reverse mortgage makes more sense for you than Florida mortgage refinancing or a HELOC - but I’ll borrow a line from my earlier column and tell you that my best advice is that you don’t look at this loan in isolation from your household budget, any other investments and your expected financial needs.