Reverse Mortgage Loan Blog

The tumultuous times in the financial markets have impacted everyone.

Many of my senior clients, who thought they were financially secure to enjoy retirement, are being forced to uncover alternative sources of funds.

One of the increasingly popular tools being used today by seniors who own their primary residences is the reverse mortgage.

The reverse mortgage is a special type of home loan that lets homeowners convert a portion of their equity into cash. The size of a reverse mortgage is determined by a borrower’s age, the interest rate, and home’s value. A borrower can take the proceeds from the loan in a lump sum, on a monthly basis, or as a home equity line of credit. The borrower retains title to the property, and homeowners are still responsible for taxes, insurance, and upkeep.

Unlike a traditional home equity loan or second mortgage, no repayment is required until all borrowers cease to use the home as a principal residence.

After the home is sold and the loan is paid off, any remaining equity in the home belongs to the borrowers or their heirs. Reverse mortgages can protect against depreciation, and borrowers will continue to receive payments even if they owe more than the value of the house with no additional liability.

How can you decide if a reverse mortgage is right for you? Ask yourself the following questions:

• Are you a homeowner 62 or older who lives in a primary residence and has equity built up?

• Are you planning on staying in your home for the foreseeable future, at least five years?

• Do you find yourself short of funds each month?

• Are you having difficulty finding other sources of funds because of credit or limited income?

If you answered yes to any of these questions, then it may be time to seriously consider a reverse mortgage.

Because individual circumstances differ, it is always wise to consult a qualified financial adviser and involve family members before making a decision.

There are situations when a reverse mortgage would not be a wise choice. Because of the higher up-front costs and compounding interest associated with these loans, it usually does not make sense for borrowers who intend to move soon. Also, if the borrowers’ health is declining and there is a good chance they may have to move into a nursing home, the reverse mortgage would not be a good choice. Once all borrowers are out of the home for a period of 12 months, which includes stays in nursing homes, the mortgage becomes due and payable. The interest accrued is still tax deductible at termination.

Do your research before making a decision, and talk with your advisers and family. Reverse mortgages are not for everyone, but they have helped many seniors with necessary expenses and added to the quality of life.

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