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What Are Senior Reverse Mortgages?

By Marilyn Katz

Republish: EasyPublish™ Published: 05Apr2011 Word count: 561 Viewed: 184 time(s) Get Free Content For Your Site

The topic of reverse mortgages for seniors has become a lot more popular lately. I have seen them written about in magazine articles, advertised on TV, and talked about in retirement seminars. Are these financial tools right for you?

What are reverse mortgages? They provide a way for older people, over age 62, to cash out some of their home equity. So in order to benefit, you must be over 62 and own a home that is mostly paid off. The amount of home equity you can use will be the difference between your mortgage balance (if any) and the appraised value of the home you own.

These transactions can help some seniors supplement their income. Many older people are having trouble managing on fixed incomes. Social security payments are not that large. In recent years, the value of other retirement accounts may have gone down. So the one thing that many of these retired people do have left is their home equity. Since you cannot actually "spend" home equity until a house is sold or refinanced, a reverse mortgage provides another way to use this value.

The money does not have to be paid back until the borrowers move out of the home. At that time, it is usually sold. The loan is paid back. Any remaining equity can be kept or given to heirs. This allows the seniors to stay in their homes while still using the cash to help them live more comfotably.

As with any other type of home loan, expect fees. There may be interest, origination fees, and other closing costs. The total amount of extra costs will vary with the current interest rate and different lenders. But reverse mortgages are different than home equity loans. To get a home equity loan, you must be qualified because of income and credit ratings. The home value, borrower's age and the current interest rate will determine how much a borrower can get with a reverse mortgage.

The cash from the transaction may prevent older people for qualifying for some government services. Medicaid qualifications will usually discount the value of a primary home. However, the cash from a reverse mortgage will not be protected. Also keep in mind that the home owners will still have to pay for normal expenses like upkeep, property taxes, and home owners insurance.

Before you decide if this type of transaction would be the right thing for you, it is very important to get the advice of a professional counselor. The counselor should not have any vested interest in the transaction but should be able to give you an unbiased opinion. Some people will do better by exploring other options.

It really depends upon the financial need and the unique situation of the borrowers. For example, an older couple who plans to stay in their home for several years, but needs a nest egg in case of an emergency, may be good candidates. An older couple who just wants extra money to take a vacation should probably reconsider. After all, this transaction will mortgage off of some of a very valuable and protected asset! Be sure and do your research before you take a big step like this.

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