What is a Reverse Mortgage

Is a Reverse Mortgage a Good Idea?

When the concept of reverse mortgages first came about, many were confused and a lot of people were very leery about such a mortgage.  The term ‘if it sounds too good to be true, it probably is’ can definitely be linked to the opinions of many about reverse mortgages.

Seriously, how could a lender give a retired couple a loan that they don’t have to pay back? Suspicions abounded around this concept and, unfortunately, a lot of people were so overly suspicious they didn’t take the time to investigate and find out what exactly is entailed in a reverse mortgage.

Reasons to Consider a Reverse Mortgage:

Reverse mortgages were designed with retired persons in mind. Many retirees are dependent upon their Social Security benefits and any retirement savings they may have to meet their financial obligations. Unfortunately, however, for many retirees it is nearly impossible to meet those obligations with their meager income and the constant increases in the cost of living.

Increases in property taxes, increases in the price of gasoline, increases in the cost of food, increased credit card interest rates, as well as increases in just about everything else make it very difficult for those living on a fixed income.

Many retired people have lived in their home for many years and do not want to have to sell it and move to a smaller place such as an apartment or condo. Some are holding on to homes to pass on to their children as an inheritance. And still others simply may not be able to sell their homes and make enough profit that might allow them to move to another comfortable location.

This is where the reverse mortgage can be of great benefit.

How Reverse Mortgages Works:

The reverse mortgage works by allowing a homeowner to use the equity built up in their home. The mortgage amount will depend upon the amount of equity that is available. There are a few requirements and qualifications you will need to meet, which will determine the amount you will be able to borrow.. such as your age, the current interest rates, how much your home is worth, and how much equity is available.

One of the excellent benefits of a reverse mortgage is that the loan does not have to be repaid until the home is sold, or until the owners of the home move to another permanent residence or pass away.

Another advantage is that you can choose how you would like to receive your loan: a monthly allotted payment, as a credit line, in one lump sum or even a combination of all of these choices.

Say, for instance, you took out a lump sum payment which you used to pay off debts and then also kept a line of credit open for emergencies. Now your monthly debts are lowered and you have some extra funds available for any emergencies or repairs or whatever else you may need. Surviving on your pension and Social Security just got a bit easier.

However, as with anything else, there is a downside to taking out a reverse mortgage. If you were saving the home as an inheritance for your children, the debt from the loan will become payable upon your passing. Also, since the loan was based on the equity of your home, the amount of equity will be decreased and will be dependent upon how much you receive from the reverse mortgage.

With these considerations in mind, however, a reverse mortgage can still be a great way to go for peace of mind and a more financially stable future.