Reverse Mortgages are financial arrangements that allow you to live off of their equity in your house. While these are not recommended for people who have enough to live comfortably or who have little or no equity in their house, it can be hugely helpful to others. In a perfect world, everyone would be able to retire and live comfortably during their golden years. However, we see more and more seniors who end up having to work longer, or drastically reduce their standard of living. A retirement should be able to provide for you to live under the same standard of living you enjoyed during your working years. If you have a moderate amount of equity in your house, you can take advantage of it and live out your years in comfort with a reverse mortgage.
So what should you know about a reverse mortgage? Most reverse mortgages are obtained with refinancing ones home but one can obtain a reverse mortgage as a purchase-loan as well. A reverse mortgage has no monthly payments and can allow one to access cash out of the property. However, you will have to pay normal taxes, utilities, and other home maintenance bills. No monthly payments sound great but make no mistake, you’re still paying for it. A reverse mortgage can mean you are essentially handing over the property to the bank in exchange for not making a monthly mortgage payment.
A friend of mine’s mom used a reverse mortgage 15 years ago to access her equity to pull out $200k in cash with NO no monthly mortgage payment requirements for the rest of her life. Her property was paid off at that time. Today, that $200k mortgage and increased to $420k – due to negative amortization. The property is worth $695k. The loan balance will continue to increase and could eventually exceed the value of the property, depending on how long she lives. For her, a reverse mortgage was the right decision but again, this loan product is not for everyone.
A common misconception is that the reserve mortgage lien holder owns the property and keeps any equity remaining. This is untrue.
No loan is good or bad. A loan is just a finance-tool. Make sure this tool is right for you. Always spend more time researching the negative aspects to any loan since the positives are most obvious. Please consult a tax advisor for further information and talk to friends and family. Make sure to do your homework before agreeing to any mortgage and especially a reverse mortgage.