Feb 11th, 2013 | By | Category: Senior Finances

What is a Reverse Mortgage?

Reverse mortgages can be rather confusing for seniors. And they are designed uniquely for seniors. Consumer Reports says this about RMs: “A Reverse Mortgage is a popular but complex home loan just for senior homeowners. If you qualify for a Reverse Mortgage, you will not have to make monthly payments on the loan. Instead, the lender pays you. Typically, the Reverse Mortgage is repaid from your home’s equity when you sell the home, move out permanently, or die. You, or those who will inherit from you, can keep any sales proceeds from your home in excess of what you owe the lender.”

Mortgage is an extended-four-letter word for most seniors. We are cautioned on every front not to have a mortgage in retirement. But a lot of seniors in fact have reverse mortgages.  Why would a senior get a reverse mortgage? Because he/she lives on a fixed income and expenses consume all that income; in addition, seniors who have reverse mortgages do not plan to leave their home to family/survivors after their death. In those circumstances, RMs work well.

The Down Side of Reverse Mortgages

There is one big disadvantage of RMs.  They can be very expensive. When you apply for the loan, you are only able to get a percentage of the appraised value of your home. In addition, many RMs have application and set-up costs that make the loan unappealing. If you want to sell your home, the loan has to be paid back out of the proceeds. So if you want to leave your home free and clear to your descendants, don’t get a reverse mortgage.

Most everything you read today about reverse mortgages tell you to seek help from a HUD-approved reverse mortgage counselor. The counseling is free and HUD isn’t trying to sell you anything. There are many different kinds of reverse mortgage loans, and you need to understand them in order to make a wise choice if you apply for the loan. Although you retain ownership of your mortgaged-home, there are restrictions that you need to be willing to live with if you get a reverse mortgage.

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  1. […] reverse mortgages; again, it makes sense for some seniors, but for most of us, it is just a means to sign away the title to our home for pennies on the dollar; read the fine print carefully, and be sure to consult a dependable financial advisor; […]

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