Reverse Mortgages

So here's the skinny on reverse mortgages. I've heard alot about them over the years, but finally made a point to sit down with a local lender to fully understand them. And like most subjects when you have a firm grasp of them, reverse mortgages aren't nearly as bad as most people (most of whom don't understand them) would have you believe.

Here's how reverse mortgages work: they are age-based loans that don't ever need to be paid on until the home is no longer the primary residence. And the money owed on them can never be higher than the appraised value of the home.

That's a pretty good deal for some people. For many older folks who want to stay in their homes but are struggling with bills, a reverse mortgage gives them access to money that won't need to be paid back until the house sells. And since the balance will never be more than the home's appraised value, the homeowner doesn't have to worry about owing more than they can repay.

Now here are the fine details.

Reverse mortgages are appraisal- and age-based and do not factor in income, debt, credit score, or financial history. Only the home's value and your age matter. The older you are (you have to be at least 62), the more money you can use. (Your age minus 5 is the percentage of the home's appraised value that you get).

Reverse mortgages are expensive to open, about 2-3 times more than home equity loans or refinanced mortgages. For someone who does not plan on staying in the home, they don't make sense.

Because reverse mortgages are leveraged against the equity in the home, the homeowner (or the heirs) will get less money, if any, when the home is sold. For someone who wants to leave money for their heirs from the sale of their home after they die, reverse mortgages may not be the best idea.

Interest rates on reverse mortgages are a little lower than prevailing rates. If you do use money from your reverse mortgage, it is fairly "cheap money". Interest is charged against any money that you pull from the mortgage, but remember--you'll never owe more than the home is worth.

Reverse mortgages actually accrue interest on unused principal. If you open a reverse mortgage, the bank rewards you for not using all available principal. And it's a pretty healthy rate--about what money market accounts charge.

You can choose to use your reverse mortgage one of two ways when you open it: receive monthly payments from it, or use it more like a bank account and only on an as-needed basis. If you open your reverse mortgage with the monthly payout option, your monthly payment will never stop, even if your original principal balance is exceeded, and you'll never owe more than the home is worth. There are some special requirements with this part of it, but it can be a pretty good deal.

There's a lot to chew on here. But the main point is that reverse mortgages are very beneficially to some people and it's worth looking into. The federal government asked banks to come up with these loans to help people stay in their homes longer, so it's not just another gimicky bank loan.

Call me or call your bank to look into it.