Reverse Mortgage: Is It Right For You?
A reverse mortgage also called lifetime mortgage is a loan senior citizens borrow against their home. Created years ago as a form of assistance to seniors in financial distress, a reverse mortgage does not need to be paid back as long as the borrower lives in the home where the equity comes from. But is this too good to be true? While there have been more than 600, 000 reverse mortgages issued from 1990 to 2010 based on statistics from the AARP, these products are costly and ripe for abuse. Taking a look at reverse mortgage in detail will give borrowers an insight on whether they should jump in the band wagon as did other seniors who contributed to the phenomenal increase in this type of mortgage from 2003 to 2007.
Reverse Mortgage as a Lifeline for Seniors
Home Equity Conversion Mortgage, a type of reverse mortgage, is a federally-insured loan that enables homeowners who have already paid for their homes in full to take out their home’s equity through a lump sum payment or a line of credit. The loan can also be paid by the lender on a monthly basis. Since there are no credit requirements, it makes it easy for seniors to take out a reverse mortgage on their homes considering that they usually have a lot of expenses including utility bills, groceries, petrol, and medical needs but usually don’t have a lot of money except that of their home’s equity. The question is if there are no monthly payments, how do the lenders make any money? When the homeowners die or move to a new home, the home is sold by the lenders. If there’s a remaining balance, the Federal Housing Administration would have to pay for.
Reverse Mortgage and Deceiving Reverse Mortgage Ads
While some would say that reverse mortgage as a financial service is flawed and proves to be very expensive, it is a valuable for seniors. For those who are 85 and above who own a house that has a market value of say $700, 000, but only have a few hundred dollars a month to get by, getting HECM or any reverse mortgage is a good idea. But even if reverse mortgage serves as a lifeline for many of America’s seniors, a reverse mortgage is not a government assistance program. A reverse mortgage will also not buy you your dream car or dream holiday like in the ads.
How Much Can Your Borrow From Your Reverse Mortgage?
The possibility of using what you have loaned to buy what you have always wanted is there, but the amount one can borrow varies from one person to the next because it depends on your home’s equity, and your age. According to experts, the maximum you can borrow from your reverse mortgage is $625, 500.
Reverse Mortgage Pitfall
In such an economic climate, Americans are tightening their belts to pay off debt. For seniors who are struggling to make ends meet, getting a reverse mortgage is a blessing. Those thinking of getting one should be careful though because if a couple tries to get this type of loan, lenders will usually only put the name of the older person as the borrower instead of putting the names of both owners of the house on the reverse mortgage.
Your Reverse Mortgage Could Backfire
In a CNBC report, Robert Bennett, a homeowner who got a reverse mortgage in 2008, got into this sticky situation. When the Bennett couple took out a reverse mortgage on their home for $300, 000, the lender told them that Ophelia’s name will go on the loan because she’s older. The lender promised the Bennetts that Robert’s name will be added to the reverse mortgage later on. This proved to be a bad idea because when Ophelia died, Robert was left with nothing. Like other financial services, there is a need for seniors to understand what the consequences are in taking out a reverse mortgage. Before getting a reverse mortgage, there is a need to go to a HUD-funded agency. Consumer protection is now being put in place to help seniors decide whether they should take out a loan or not or learn which type of reverse mortgage is fit for them.