Is A Reverse Mortgage Right For You?

You may have heard that reverse mortgages are getting very popular with senior citizens who need to supplement their incomes. They are not the right solution for every older home owner though.

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. The income that people expected to get from retirement savings accounts has probably decreased. A lot of older people do have one large asset. That is there 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. The program will permit the borrowers to stay in their house. Plus, they can use the money to supplement their income.

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. Home equity loans are not the same as reverse mortgages. You have to go through financial underwriting to qualify for a home equity loan. 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. Many older people should consider other alternatives.

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. If you just want to buy a luxury car or take a cruise, you should probably hesitate. 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.


------

Visit the Over 50 Website for more information about planning for retirement! If you need to cut your bills, we may be able to help you shave down insurance rates with online insurance qutoes too!