A colleague and I recently were invited to my Church to give a presentation to twenty five seniors on the benefits of a reverse mortgage. The last statistics I saw indicated this is a $7 billion dollar business and, in my opinion, the numbers will greatly increase as our population continues to age.
So what is a reverse mortgage? Basically, it's a loan against the equity in your home that you can do whatever you like with it. There are obviously rules, though. First, you must be 62 or older and the loan is based on the younger of the couple if you're married. Second, you must visit with an approved financial counselor so they can explain the features of a reverse mortgage and also have you consider other alternatives (annuities, for example). The counselor will be able to tell you how much you're eligible to borrow. Reverse morgages are an FHA (government) approved product so you're capped on how much you can borrow based on the equity in your home and your age.
When might a reverse mortgage make sense? Perhaps you're on a fixed income and your medication costs have increased. Or you bought your home 40 years ago, it has appreciated tremendously, and your property taxes are no longer affordable. With a reverse mortgage, you have the option of taking a lump sum payment or payments over time. In my mind, a reverse mortgage could solve a problem you may have.
There are many misconceptions about reverse mortgages. One, the owner loses title to their home. This is false. You're allowed to stay in your home which, if you think about it, is probably what you want to do anyway. No one likes to move. If you sell, move, or the last surviving spouse passes away, the balance due on the reverse mortgage will be paid from the proceeds of the sale of your house. The second falsehood is that people could end up upside down in their home. Since the amount you borrow is capped by the FHA, this cannot happen. The worst thing that could happen is you or your heirs might not realize as much from the sale of your home.
Again, in sum, I believe reverse mortgages will be increasingly popular for the over 62 set. Yes, they can be expensive (points, fees are typically higher plus you need to have mortgage insurance) but, again, they may solve a problem and, ultimately, allow you to stay in your home. If you're interested in a reverse mortgage, contact an FHA approved lender so they can walk you through the steps. I hope this helps. Have a great day!
Paul
Paul McFadden
