Reverse Mortgage - Common Issues
Barry Waxller
As you head into your retirement years, you need to figure out how to generate income. Reversing your mortgage is one option that has become popular, but is also very controversial.
As the name suggest, this is a loan wherein you receive payments from a lender instead of making them. The rest of the loan, however, is much different than your run of the mill mortgage.
The reverse mortgage is based on the equity in your home. Every time the lender makes a payment to you, it gets a bit of your equity. This equity is held as debt like in a traditional mortgage and interest is charged on the amount.
The number one question regarding reverse mortgages has to do with equity. Specifically, what happens if the equity is all used up before the borrower dies or the home is sold? Do you lose the home, get foreclosed on or what?
When the equity ran out, the very first reverse mortgages often had clauses that allowed the homeowners to be removed from the property. Yes, it was ugly. Most current programs allow you to remain in the home, but read the fine print of yours.
If you are going to be giving away equity, what size of payments can you expect? There is no simple answer. Factors such as the amount of the reverse mortgage, your age, costs and so on all go into the calculation of the payment amount.
If this sounds too vague to you, don't worry. One of the biggest factors is the program you choose. There are different ones offering different payment amounts. You can even take lump sum payments in some cases.
At some point in time, you might realize a reverse mortgage is not for you. Can you get out of it? Generally, you can so long as you pay off the mortgage debt. Make sure to read the loan documents for language on this issue.
Real estate is beautiful because it appreciates most of the time. After getting a reverse mortgage, can you still tap this appreciation? The answer is usually yes, but you may have to refinance the property to do so.
If the program works well, you will pass away before the equity in your home runs out. Odd to say that, but it is true. At that time, your home will pass to your heirs who will either pay off the mortgage or sell the home.
In some cases, the reverse mortgage makes sense. In others, it does not. The only way to make a determination is to discuss the details with a financial professional.
Barry Waxler is a http://www.ufcamerica.com/ financial advisor with UFCAmerica.com.
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