Reverse mortgages
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A reverse mortgage is a type of loan available to seniors (62 and over in the US) that is used to convert their home equity into one or more cash payments while retaining ownership of the property and avoiding monthly payments. The borrower does not have to repay the loan until he or she is no longer living in the home.
Much like every type of mortgage, a reverse mortgage has some positives and negatives that may or may not fit an individual’s needs and wants,
Craig Romero, mortgage analyst for mortgage-listings.com, explains the various aspects of reverse mortgages in his article, “The Pros and Cons of a Reverse Mortgage.”
“Reverse mortgages are becoming more and more popular every day. This is not surprising, considering senior citizens are facing an increased cost of living and decreased sources of revenue. The average social security check doesn’t cover even the most basic living expenses of the typical senior citizen.”
Many senior citizens were being forced to leave their homes and move into low income housing just to meet a basic standard of living. Reverse mortgages are starting to reverse this trend.
There are several benefits to reverse mortgages.
“Seniors no longer have to sell their homes in order for them to be able to afford their medications or to have extra spending money. Reverse mortgages allow them borrow against the equity in their homes. There are no payments due on the mortgage for the entire time that the homeowner lives in the home, making this option an affordable solution to a financial crisis.”
As a result, the home becomes a source of income, putting the equity to work for the homeowner.
Another benefit is that the income generated from the reverse mortgage is tax free. There is also no minimum income required to qualify for the mortgage.
While a reverse mortgage offers a great opportunity to have extra money, seniors may have to make sacrifices in order to be covered by a reverse mortgage.
“There are many government aid programs that senior citizens qualify for when they meet certain income and cash asset criteria. If a senior citizen is participating in one or more of these programs, they need to make sure that their benefits will not be affected by the income that would be generated by taking out a reverse mortgage.”
“Many seniors also do not like the fact that the homes that they worked so hard to own free and clear will now have a large debt against it, even though the debt will be paid off from the proceeds of the sale when the home is sold.”
A reverse mortgage will also reduce the amount of inheritance an heir would eventually receive.
“It is important to weigh both the pros and the cons and determine what is right for you in your specific situation and circumstances. Reverse mortgages can be an invaluable benefit for many, but is not right for everyone.”