Reverse Mortgages

There seems to be a new phenomenon in the mortgage world known as the reverse mortgage, many advertisements claim how they can improve quality of life and if you’re a homeowner, age 62 and over, you receive them in the mail almost daily. Of course you can also find many articles proclaiming how damaging they are and this can confuse the issue plus makes it difficult for a person to choose as they do not know whether it would be a good idea or a bad one. Well it can actually be both, so it pays to understand the loan if you or a loved one are contemplating a reverse mortgage even though they have been around since 1961.

Of course the real reason for the sudden upsurge in reverse mortgage applications is the growing number of people retiring; which is about to increase even further from 2008 as the so called ‘baby boomer’ population is set to start retiring from that year onwards. So over the coming years, vast numbers of people will be retiring in the United States alone whose main financial asset will be their home.

Now people in the Western world are living much longer but that does not necessarily mean they are enjoying the fruits of their retirement especially if there has been little or no provision for this. A traditional mortgage the individual pays a payment monthly to pay down the debt thus making the equity higher and the debt lower whereas with the reverse mortgage the borrower receives payment(s) from the lender but makes no monthly payments and the debt rises while the equity falls as payments, fees and interest accumulate.

People using reverse mortgages repay the amount borrowed in full at a later stage and because they are no longer working, there isn’t a check carried out on income or their credit history; the only exception to allowing this type of mortgage is where the person has defaulted on a federal obligation. People that arrange these reverse mortgages do not need proof of income nor is there a lower limit plus the credit score is not taken into account and the flexibility has helped many retired people in a dire financial situation.

Seniors that have these loans supplied by the government can also rest easy knowing that no matter how many years they live in the property and whatever the final amount is that they owe, it cannot be more than the value of their home irrespective of fluctuations in property prices. Not everyone will benefit from a reverse mortgage though so if you do not intend to stay in the property, it probably isn’t for you; however, it is the most efficient way for most people to stay in their homes.

Ideally you need to work with an expert, not just a loan officer from a brokerage or a bank who was doing sub-prime loans last month and is doing reverse mortgages this month. The most obvious benefit of reverse mortgage schemes is the fact that interest rates and fees are regulated by HUD and so everyone is treated the same although the chances of different types of plans are greater with a mortgage company than they are with a traditional bank.

This subject should be discussed with any children involved as it will affect their inheritance but seniors should not worry unduly about their reaction. In reality the children cannot afford for the parents to live with them and would prefer they were not in a residential home so are not concerned about the financial implications to themselves.