Has the Reverse Mortgage Hit the Mainstream

A Home Buying Article Contributed by Robert Scalia

Has the Reverse Mortgage Really Hit the Mainstream

If you open up any financial paper or follow advertisement today you will likely come across the reverse mortgage.

A reverse mortgage, quite simply, is a loan to an elderly homeowner on which the borrower's debt rises over time. WhatÈs interesting with this type of mortgage is that this type of mortgage need not be repaid until the borrower dies, sells the house, or moves out permanently.

But with all the talk, can it be that the idea of reverse mortgage is one that is finally ready for mass consumption?

Where Does the Reverse Mortgage Stand in the Overall Home Buyers Market

The reverse mortgages is picking up steam, but it still has a long way to go.

Traditional mortgages used to purchase homes and build equity, which is defined as the value of the home less the mortgage balance. Borrowers pay down the balance over time, it can be 15 years or twenty years or even thirty years. When that borrower reached the age age 62 and is therefore eligible for a reverse mortgage, loan balances are either paid off or much reduced.

A reverse mortgage does just the opposite. Rather than build equity, a reverse mortgage will actually consume equity because loan balances rise over time. That means that if there is a balance remaining on a traditional mortgage at the time that a borrower takes out a reverse mortgage, that balance will then be paid off with an advance under the reverse mortgage.

Do You Really Need a Reverse Mortgage in Order to Raise Money

The need for a reverse mortgage has always been there, historically speaking. It is plausible to build equity during your high-earning years and then turn around and consume it after retirement. Not only is it plausible, it is almost natural.

This becomes even more necessary when retirement incomes and paychecks don't allow people to live out the lives they want. If you want to spend every weekend of your retirement fishing up North and then the rest of your time vacationing around the world, then your monthly retirement checks just might not cut it.

Without a reverse mortgage, the only way to consume equity is to sell the house and live elsewhere. But historically, reverse mortgages have always been a hard sell and weren't all that popular in the 1970s and early 80s. the problem wan't so much a lack of interest as it was a lack of follow-through when it came to the transactions.

What made matters worse was the tendency to procrastinate. Unlike taking a traditional mortgage out, borrowers never had to worry about reverse mortgages simply because they had the house and the children were long gone. What made the decision harder was that they were toying with an asset that always had great emotional value. And still today, people know that making a mistake at this stage in life isn't always easy to rectify. taking out a second mortgage is a colossal decision.