By Mike Bodeen · 25 April 2016
Reverse Mortgages. A Risk? A Strategy? Or a Risky Strategy?
Well, now that I’ve turned 62, more senior financial options are presenting themselves to me even besides being able to take Social Security payments, though I won’t just presently. Since this is a real estate column, I’ll discuss one these options as it relates to your home sweet home; which is the “Reverse Mortgage.”
Many seniors today own their homes free and clear or close to it. Quite a few of them are living on Social Security alone, or close to it. By using some of their home equity – like getting monthly payments, their quality of life could substantially improve. That’s also one of the downsides as there could be less inheritance for family members
Reverse Mortgages have been around since the 80’s and originally they did not have such a great reputation. Nowadays most folk don’t even know they exist. If they knew more about them, they might want to consider checking into the program. It has its advantages. But first, what is a Reverse Mortgage?
A reverse mortgage is a type of home equity loan for homeowners who are 62 or over. It does not require monthly mortgage payments. The loan is repaid after the borrower moves out or dies. Also known as a home equity conversion mortgage, or HECM. People who can benefit from a reverse mortgage include people who:
Don’t plan to move.
Can afford the cost of maintaining their home.
Want to access the equity in their home to supplement their income or have money available for a rainy day.
To qualify, borrowers have to be at least 62, own their home outright or carry a mortgage small enough to be paid off by the proceeds. There are no income or credit qualifications, although homeowners are responsible for paying the annual taxes, property insurance and maintenance. No loans have to be repaid until the owners move or die, in which case the bank takes its share and anything left goes to the heirs. However, if the owner fails to pay insurance and property taxes, the reverse mortgage is deemed in default and the owner is in danger of foreclosure.
Disclosures and protections are much better than they were back in the 80’s. Like any financial product, it’s a good idea to get wise counsel from an attorney, family member or trusted friend. As always, the best advice often comes from someone who isn’t financially remunerated from their advice.
To learn more about Reverse Mortgages and their benefits and risks, check these links:
http://www.bankrate.com/finance/retirement/basics-of-reverse-mortgages-1.aspx#ixzz46sLog12J
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten
http://www.aarp.org/money/credit-loans-debt/info-04-2013/are-reverse-mortgages-helpful.html
http://www.consumerfinance.gov/about-us/blog/consumer-advisory-dont-be-misled-by-reverse-mortgage-advertising/