IS A REVERSE MORTGAGE RIGHT FOR YOU?

While most of us understand what it means to have a regular mortgage on a house, the idea of a reverse mortgage is something which is often somewhat less understood.  Generally considered a helpful retirement tool, it allows homeowners over the age of 62 to greatly increase their income by borrowing against their home’s equity, without losing property ownership.

With conventional mortgages, the borrower makes monthly payments to the lender; however, in reverse mortgages, the lender actually makes payments to the borrower through the use of a lump sum, a line of credit, or monthly payments.  Still, the loan will obviously need to be paid off, so this is done when the borrower either dies, permanently moves from the residence (does not live there for at least 365 consecutive days), or the property is sold.

If you’re wondering how it may benefit you, it’s first important to understand that, because their property is generally paid off, the largest asset most retirees possess is their homes.  Therefore, it can become a dominant source of funding since they are able to secure financial support while still retaining their home’s title.  With this, eligibility is based around several factors, including age, home value, and current interest rates; however, it is important to note that, since this type of mortgage is geared towards retirees, you will not be required to undergo a credit check or be expected to have a stable monthly income.

Still, while this may seem like the perfect scenario to help carry you through your golden years, as with anything, there are a few downsides which also need to be taken into consideration. 

1.)  Fees:  The fees for this type of loan are generally higher when compared to a conventional mortgage plan.  While they are rolled into the loan and not paid out of pocket, it’s important to be aware that they often include charges for loan origination, mortgage insurance, appraisals, and title insurance, as well as current interest rates.

2.)  Moving:  Although it may not seem like an issue now, if you ever need to enter a full-time care facility for more than a year, the mortgage stipulations will consider it a permanent move, which would cause your loan to become due.

3.)  Your estate:  Reverse mortgages use the equity in your home, so it will decrease over time.  Therefore, upon passing, your heirs will most likely be left with less money.

In the end, while there are several variables involved, along with a multitude of other personal factors, a reverse mortgage is considered a “non-recourse” loan, which means that, at loan maturity, you will never owe more than the appraised value of your home.