When you hear the term “Reverse Mortgage” what is the first thing that pops into your mind? Possible relief? Apprehension? Indifference?
Reverse Mortgages mean different things to different people. If you are over 62 years old, living on a fixed income and unable to meet your monthly obligations, these mortgages may seem like the answer to a prayer. You may be caught in the trap of a low balance on your current mortgage but your payments are still based on the original balance of your loan. You might refinance, but if your fixed income isn’t enough to qualify you, you are trapped in your current loan.
Maybe your mortgage is paid in full but the property taxes, insurance, and upkeep are a stretch on your budget.
You’ve thought about a reverse mortgage but you want to will your home to your children and you’re afraid a reverse mortgage will keep that from happening.
I’m going to give you my unvarnished opinion, warts and all.
First, you have to be at least 62 years old. The purpose of a Reverse Mortgage is that there will be no more mortgage payments for as long as you stay in your home.
You do not have to have great credit, you do not have to qualify with your income – the home is the focus, not you, the borrower.
You are not deeding your home to the bank, you are not losing anything. What you are doing is using the equity that is not accessible any other way, to supplement your limited retirement income.
Your heirs can keep the home by refinancing and paying the bank back. They can also sell the home and pay the bank that way, keeping whatever proceeds remain.
The only real negative of a Reverse Mortgage is the relatively high fee structure. The fees are deducted from the loan itself so you are not paying out-of-pocket. The Federal Housing Authority actually loses money on these loans, so the fees are necessary if they plan to continue to make these loans available.
On the other side of the coin, I recently met a woman whose aunt had owned her home forever and didn’t want to move. The problem was that other than her social security income, the equity in her home was all she had. She was only 72, very healthy and vibrant but the rest of her life looked grim with years of penny-pinching ahead of her.
Her niece told me a Reverse Mortgage changed her life. She was able to travel, go out for meals with friends, and live her life without all that money stress.
The niece was going to inherit the home someday but, in the meantime, it changed her aunt’s life for the better.
So, I learned not to judge too quickly.
There is definitely a place and a need. It’s important to review all options to see what is best suited to your particular situation.
Do you know anyone who has a reverse mortgage? There are loads of entertainment people who have asked about them – it would be great to share real-life stories of how they’ve helped.