Many more reverse mortgages are being placed this year vs last year due to seniors’ depleted assets by market losses. Tapping into a senior’s home equity can be a safety net but could also be risky for someone not informed.
If one is 62 and has a significant equity, the reverse mortgage can turn that equity into tax free cash without forcing them to move or make monthly payments. The lender will make a payment to a borrower in lump sum, monthly cash payment, a line of credit or a combination of all 3 ways. When the owner dies or moves away, the house can be sold, the loan paid off and the left over equity will go to the living owner or the designated heirs.
Reverse mortgages have traditionally been used by older Americans who can not cover everyday expenses or have limited funds to pay long term care premiums, home health care services or the current mortgage. More recently they are also poplar with those who need a better alternative to home equity credit lines.
Elderly folks need to seek a financial advisor on such a program as financing costs and the interest rate can be more than the normal conventional mortgage rates. Also, Federal retirement benefits could be endangered and a reverse mortgage is subject to be called should the owner fail to pay property taxes, adequately maintain the home, fail to pay insurance premiums, or change their primary address.
The family needs to talk, also, to understand and advise the elderly in the process as their home is often the major asset they own.
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