With the recent downturn in the stock market, many seniors who had spent years saving money and investing it, in hopes that they would be able to spend time with their grandchildren or travel the World, have found themselves in an unforeseen situation.  The money they saved has drastically been reduced, if not gone altogether.  Fortunately these same individuals have also been paying down their mortgages thus creating substantial equity in their homes, allowing them to fall back on Reverse Mortgages to assist them with their retirement goals.

Reverse Mortgages are generally available to those of age who are 62 and older.   Reverse Mortgages allow these homeowners to convert the equity in their home over to tax free income.  In true poetic justice, after paying the bank for years, now the bank pays you.   Homeowners can elect to receive their payment in a lump sum, fixed monthly installments, or a line of credit.

Despite the current housing slump, Reverse Mortgages are booming in comparison.  The number of federally insured mortgages hit 112,015 in 2008, which was up significantly from 43,082 in 2005, according to the federal housing data. 

One of the major reasons is simply that seniors are looking for cash.   Whether they are living longer, running into unanticipated expenses, or trying to keep up with inflation, the bottom line is that seniors need additional income, and their homes have become a commodity rather than in inheritance.  Nelson Rood of Equity Concepts of Arizona LLC, says, “Were suggesting a lot more of our senior clients look at reverse mortgages as a means of providing an income for the short term, allowing their portfolios to rebound from the hit they’ve taken over the past two years.  However, adds Rood, “seniors exploring reverse mortgages need to be aware of the costs involved in doing so.  Homeowners pay 2 points, or 2% on the first $200,000 they borrow, and an additional 1 point, or 1% on the remaining balance before capping out at $6,000.  Unfortunately, that’s not all.  Additional costs of a Reverse Mortgage can total as much as 10% of the value of the home.  In some instances it may be wiser to accept the consequences of withdrawing funds from a less than healthy retirement account, rather than jump into a reverse mortgage.

There is somewhat of a safe-guard with Reverse Mortgages; as long as you own the home, you are not obligated to pay back principle or interest, which continues to add to your outstanding balance over time.  When the homeowner sells the home or passes away, the note will then need to be repaid.  However in the event the home sells for less than the balance of the note, the estate inheriting the property is not liable for the difference.

All in all, Reverse Mortgages are financial tools, that when utilized properly, can provide seniors with a stable retirement, allowing them to utilize the fruits of their labor.  However, a degree of caution should be understood before running out and stripping away the equity in your home.  In addition to speaking with mortgage bankers who specialize in Reverse Mortgages, there are a variety of other resources such as the AARP, (aarp.org) and the National Reverse Mortgage Lenders Association, (reversemortgage.org), who can assist in answering any questions you may have.

Social tagging: reverse mortgage discussion > reverse mortgage uses

A Few More Related Articles of Interest:

No related posts