Reverse Mortgages–Pros and Cons

 

house with keyMore than 600,00 Reverse  Mortgages were issued between 1990 and 2010. What are they and what are the caveats?

 As of 2013 the number of seniors over 65 is 37 million and is expected to rise significantly over the next few years. Seniors 65+ will represent one fifth of the US population in 2030.

 In the past several years, many seniors have experienced erosion of their retirement portfolio, be that stocks, bonds, annuities or real estate. And for the first time in history, they are living the longest.

 WHAT is a Reverse Mortgage:

 A Reverse Mortgage is a a loan product that allows you to borrow against the equity in your home. You must be 62, and either have no mortgage ~or~ a small enough mortgage to be paid off from the proceeds of the RM. You must live in your home as your primary residence.

RM loans are available in fixed and adjustable rates. You can take proceeds from the loan, a line of credit (similar to a HELOC) to be used as necessary to pay medical bills or other emergencies, or a monthly payment. You do not have to pay a monthly mortgage payment. You can use the product as a refinance, with or without cash out, since there are no income or credit qualifications. You still retain title, and you do not have to pay the RM back until you: 

  1. sell the home
  2. pass away
  3. permanently relocate

 Property taxes and insurance still need to be paid.

 Traditionally, RM’s were prohibitively expensive but theHECM SAVER LOAN  charges only 0.01% of a home’s value up front. Borrowing limits depend upon your age, the home’s value and the interest rate.

 Caveats include:stop sign2

 Moving out of the home without the intention to return (moving into a Nursing Home or other care facility for a year or more), the loan can be called.

 A younger spouse married to an older spouse may be forced to move if the older spouse dies and the loan is not in the younger one’s name.

 Using up your equity by taking all the cash out at an early age and not having enough for your later years.

 Not preserving equity for your heirs.

These loans serve a particular niche, but may not be for everyone. But they may just help many seniors who have sufficient equity, limited options and really want to enjoy their golden years.

 

 

 

 

 

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