Reverse Mortgages Seniors
Some of the most common questions I get concern reverse mortgages — what are they and why are they for seniors?
In basic terms, a reverse mortgage is a way to access the equity in your home, the worth built up over the years as you have paid down the original mortgage and as the value of the property has grown.
For instance, imagine that you bought a home 20 years ago. The price of a typical existing home in 1989 was $91,401 according to the National Association of Realtors. As of July 2009, that typical house went for $178,300. These are averages, of course, a lot of people in major metro areas did much better.
But, okay, let’s say that over time you’ve paid off your mortgage — about one-third of all homes are owned free and clear — so now you have roughly $180,000 in equity.
Equity
Some people are very happy having that equity in place and untouched. Others would like to have access to the money. They can get access by selling the property — but then where do you live? Or they can refinance — but then you have those monthly mortgage payments. Or, they can get a reverse mortgage.
A reverse mortgage does not require monthly payments. Your income is not used to qualify for a loan. Instead, you get a reverse mortgage on the basis of how much equity you have.
You can get a reverse mortgage that pays a lump sum at closing, that pays a regular sum each month for a given period of time or you can get a line of credit that you can tap into from time to time.
Repayment
The loan, with interest, is repaid when you sell the home, move or pass away. The lender has no claim against your estate or your heirs other than the house. If the value of the house is not enough to pay off the loan then an insurer — typically the FHA — makes up any loss to the lender.
Is a reverse mortgage a good financial option? For some people yes, for others no. Before you sign up for a reverse mortgage be sure to speak with an attorney who specializes in elder law for proper advice.
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