All About Reverse Mortgages
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We came across this brief overview of reverse mortgages and thought it would be worth posting for those just starting to consider whether a reverse mortgage make sense for them:
Reverse mortgages are a way to turn the tables on mortgage lenders, and have them send checks to you each month. But they’re not for everyone, and certainly not a young man’s fancy. But these fascinating loans can help you enjoy a more comfortable retirement.
No matter how well you’ve planned for retirement, money is often tight. Even the most diligent planning can fall short of the real costs of the golden years. However, if you need more cash, an old friend will be there to see you through to the end—your home. With a reverse mortgage, your biggest and best investment can give you the means to achieve financial security in the final chapters of your life.
What’s a Reverse Mortgage?
A “reverse” mortgage is the opposite of a regular mortgage. Instead of your making mortgage payments to the bank, the bank makes payments to you! And you don’t have to pay back the loan for as long as you live and remain in the house as your primary residence.
You can receive the cash from a reverse mortgage in four different ways:
- Through monthly checks for a preset period of time (term)
- Through monthly payments for as long as you live in the home (tenure)
- As a line of credit that allows you to make withdrawals from a credit line until the credit is exhausted
- A combination of all three options
As you receive payments, the equity in your home decreases (unless home values are rising faster than the amount that you borrow). That’s what makes this the reverse of a traditional mortgage loan. But the laws that govern reverse mortgages ensure that you don’t have to worry about running out of equity. These loans have a “non-recourse limit” - your lender doesn’t have legal recourse to anything beyond the equity value of your house when the loan ends. And that only happens when you either pass away or move out of the house.
In order to qualify, you need to be 62 year old, and live in a house that’s your primary residence and that you own outright (or very close to it). Before applying for the loan, you must seek HUD-approved reverse mortgage counseling. You can call the Housing Counseling Clearinghouse (1-800-569-4287) to find an approved counselor near you.
Reverse mortgages are not meant as investment vehicles for the young or middle-aged - they’re intended to help senior citizens enjoy their golden years in financial security. It’s one more reason why building equity in your home when you’re young is important. That equity can cement a solid foundation for a secure, enjoyable, and dignified set of ending chapters to the book of your life.
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