Reverse Mortgages: A Good Thing?

Reverse mortgages are becoming more and more popular these days, but are they scams or are they legitimate? Is it really possible to sell your house back to a bank and still retain the deed to it? Will the bank really pay you the mortgage payments?

A reverse mortgage is a loan that is structured like a mortgage, with YOU as the lender and the BANK as the buyer. In the U.S., homeowners wanting to initiate a reverse mortgage must be at least 62 years old, and own all or most of their home. The senior citizen homeowner “sells” his or her house to the bank, in return for receiving periodic mortgage payments. Sometimes the payments can be structured as a lump sum, line of credit, or a combination of all three.

So what are the benefits of a reverse mortgage? First, it provides a constant and dependable stream of retirement income. Many retirement plans such as 401(K) or Individual Retirement Accounts (IRA’s) generally increase in value, but are still tied to the stock market, bonds, mutual funds, or some other form of security. The amount of money they provide during retirement can vary. Social Security, Medicare, and other U.S. government programs are in danger for future funding, so they may not be reliable sources of income long term. A reverse mortgage can supplement a senior citizen’s income. The amount depends on the homeowner’s age, equity of the house, interest rate on the loan, closing fees, and a few other factors.

A common misconception about the reverse mortgage is that the bank eventually owns your house. This is not true. The deed remains in your name throughout the entire term of the process. Note: there is interest on the loan payments, but it is deferred until the loan is repaid.

A homeowner can live in the house during the entire term of the reverse mortgage. The loan becomes due only when the homeowner moves out, such as moving into a nursing home, or becomes deceased. At those times, the survivors can repay the loan themselves if they want to keep the house. They can also sell the home and repay the loan plus the interest in full. The money paid to the homeowner as mortgage payments must be repaid to the lender when the loan becomes due.

These mortgages can provide much needed financial support during retirement. It is a time when medical costs are likely to increase, as well as unforseen costs can creep up. Use a reverse mortgage to help yourself or your aging relatives gain the financial security in retirement they worked so hard to achieve.

As with any investment or financial move, consult with your accountant, tax attorney, or financial planner to determine if a Reverse Mortgage is right for you.

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