Reverse Mortgage Loan Blog

For seniors who own their homes and need a cash infusion a reverse mortgage is one option to consider.

Reverse mortgages are loans that provide a way of turning home equity into cash without having to sell the home or make monthly payments.

Instead, the borrower receives monthly payments from the lender. He can also take payment as a lump sum or a line of credit or a combination of all three.

As the borrower takes payment, the debt against his home rises. But he doesn’t have to pay back the loan as long as he lives in the home, and that could be until he dies.

“Reverse mortgages provide a promising way to convert home equity savings into cash,” said John Rother, director of policy and strategy for the American Association of Retired Persons, following release of a study on reverse mortgages in late 2007.

Rother, however, called on Congress to address high loan costs and abusive marketing practices.

To qualify for a reverse mortgage, a borrower must be at least 62 years old and have relatively little debt on his home.

The older the borrower is, the more money she gets. The payments are tax free. The borrower must continue to pay taxes and keep insurance on the home.

Reverse mortgages can provide a supplemental income or a way to pay off an existing mortgage. They can also be used to prevent foreclosure or make early distributions to heirs.

“Some want to enjoy their money while they’re still living, go on trips and vacations their Social Security check won’t allow them to do,” said Gina Wong, a senior housing counselor with the Greenville County Human Relations Commission.

The AARP, however, says on its Web site that a reverse mortgage is an expensive way to pay for a dream vacation.

Home equity loans or home-equity lines of credit are less expensive if the homeowner can stand to make the monthly payments, the AARP counsels.

And borrowers may find that selling their homes and downsizing makes more sense than a reverse mortgage.

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