What You Need to Know About Reverse Mortgages


reverse mortgagesReverse mortgages are becoming more popular as the baby boomer generation ages and gets into retirement.  There are some restrictions on reverse mortgages, so the target market is much smaller than a traditional mortgage offering.  While these special loans are growing, there are some particular pros and cons that should be considered before applying for a reverse mortgage.

For those unfamiliar with the reverse mortgage, here is a simple breakdown.  Homeowners of the age 62 and older, who own their home in full or can pay it off with money from the reverse mortgage, can apply.  It is similar to a home equity line of credit, but instead of paying it off monthly, borrowers don’t have to pay it off until one of three things happen.  The loan is required to be paid back if the borrower dies, the home is sold, or if the borrower does not live there permanently.

The Pros of a Reverse Mortgage

  • Borrowers can get needed cash during their retirement years.
  • The loan doesn’t have to be paid back monthly.
  • The borrower gets to keep the home in their name.  The deed does not change.
  • There is no restriction on what the borrower can use the money for.
  • When time comes to repay the loan, if the home is sold for less than what is owed on the loan, the borrower or his/her estate doesn’t have to pay more.

The Cons of a Reverse Mortgage

  • There is a higher interest rate than traditional mortgages.
  • There are higher fees for closing and yearly maintenance.
  • A borrower usually cannot give the home to his/her heirs.  The home must be sold to pay for the loan.
  • A reverse mortgage is still a loan.  The years worked to get the equity in your home, but the loan will have to be paid back at some point.
  • The property taxes and homeowners insurance must still be paid in order to keep the loan.

As with any loan, many things have to be considered before signing any paperwork.  Reverse mortgages can help some people and hurt others.  Everyone needs to take into account their financial situation and what they want to do with their money.  Take the time to read all of the reverse mortgage documentation before agreeing to it and make sure you understand all of the aspects of this type of loan.  Understanding how a reverse mortgage works is imparative, just like any other form of loan.

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11 Responses to What You Need to Know About Reverse Mortgages

  1. Personal loan 10/19/2013 at 4:04 am #

    Wow!nice post.I like it.A reverse mortgage should not be your first source of retirement funds and should only be an option for those that have little to no other resources.Thanks a lot.

  2. Barbara Friedberg 10/12/2013 at 8:59 am #

    AS you said, there are pros and cons. In general, it’s preferable to save and invest regularly starting in your 20’s-40’s, but I understand that may not be possible for all.

  3. cj 10/08/2013 at 6:37 pm #

    I am hoping that the Hoombahs plan well enough to NOT have to do this. With blogs like yours and all it’s free and excellent info, there really is no excuse. Have a fun one!!!

    • Paul 10/10/2013 at 12:18 pm #

      Unfortunately with most American Families having $3000 in retirement accounts, this is an option that may be necessary to fund retirement expenses.

  4. canadianbudgetbinder 10/08/2013 at 5:11 am #

    Thanks for sharing this info on reverse mortgages. I’m not a big fan of them myself but some people might find they are perfect for them. Like anything research is very important especially for such a huge purchase like a home. Cheers Mr.CBB

    • Paul 10/10/2013 at 12:21 pm #

      A reverse mortgage should not be your first source of retirement funds and should only be an option for those that have little to no other resources. Thanks for stopping by Mr. CBB!

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