Yes Virginia, reverse mortgages are real

As my mother told me: if it sounds too good to be true, it probably is. I know this thought jumps into your head when you start to read about a reverse mortgage – ‘free’ money from my home with no monthly payment???? If you are 62 or over, you may have just found the goose that laid the golden egg.

A reverse mortgage is exactly what the name implies. Rather than you paying a monthly sum of money to a mortgage company, they pay you. The requirements are simple:

You must be at least 62, live in, and own your home and have a decent amount of equity in it. The lender will have your property appraised to determine its true market value and this will determine, along with your age, how much money you can receive from your house.

There are no income restrictions such as those imposed by Social Security and reverse mortgages are tax – free since they do not involve additional features like an annuity. They do not affect your social security benefits or your Medicare entitlements.

This tool called reverse mortgage is actually a loan,hence an interest rate. This means nothing is really ‘free’, it does however, allow senior citizens to convert part of their equity into cash without having to sell their home. Because it is a loan, you are receiving money and not paying a monthly payment, so long as you continue to live in your home as your primary residence. Interest is added to your balance and paid back at the end.

This loan must be repaid at some point. It is eventually repaid with interest should you sell, die, or no longer live there as your principal residence. You remain responsible to pay real estate taxes, homeowners insurance and maintenance expenses which, of course, you would have to pay with or without, any kind of a mortgage.

With this explanation, the picture becomes clearer, right? You enjoy a monthly sum, tax free and not repayable until a date sometime in the future, while remaining in your home. As close to a win-win situation as one can get in this day and age.

It is easy to see that anyone who is cash poor but house rich, should at least look into this program and see how it works for them. There is nothing to lose by asking questions.

The typical reverse mortgage is called a Home equity Conversion Mortgage or HECM (pronounced HEK-UM). The federal government insures these mortgages and they are backed by the Department of Housing and Urban Development (HUD). They have no income or credit qualifications and can be used for any purpose.

HECMs also require all applicants to meet with an independent housing counselor from a government – approved housing counseling agency. An additional benefit of a HECM mortgage is the following: should a borrower have to move out of his or her home and into a nursing home or other medical facility, they have up to 12 months before the loan starts to become due. This enhances financial planning greatly. As always, make sure you check with your trusted advisors for more information.

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2 Responses to “Yes Virginia, reverse mortgages are real”

  1. Voyage HomeLoans.Sac Says:
    August 26th, 2009 at 4:22 pm

    Reverse mortgages are loans, But they have come a long way in the last 5 years. They used to be looked at in a very negative light. But with recent changes in regulations, it can and has helped many older home owners. If you have no family to help you or anyone to turn and you are living month to month a reverse mortgage might be a great option.

    N. Peter
    Voyage Home Loans

  2. NewRetirement.com Says:
    August 26th, 2009 at 6:41 pm

    While it is true that reverse mortgages have come a long way in the past five years there are still some downsides that need to be considered.

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