Considering a Reverse Mortgage?
A Home Buying Article Contributed by Elizabeth Fox-Wise
What is a Reverse Mortgage?
A Reverse mortgage is exactly what the name implies, the opposite of a traditional mortgage. The concept of a reverse mortgage is fairly new and it has only been a few years that they have been available. Reverse mortgages are quickly becoming popular among aging senior citizens who do not want to sell their homes, but want to get some of the equity back out of them.
When you take a mortgage to purchase you home, you start with a large amount of debt and no equity in your home. Over the years as you pay off the mortgage you are reducing your debt and increasing your equity. When the mortgage is fully paid off, your home holds a lot of equity. But it used to be that to get access to the money tied up in equity in your home you either had to refinance the home or sell it.
The problem with that is many senior citizens do not want to sell their home and if you refinance your mortgage, you end up with monthly mortgage bills again. That increases the senior citizens monthly expenses which is why he needed the money to begin with. Quite a catch 22.
A reverse mortgage allows the home owner who's home is fully paid for, to take a loan against the equity in the home. The loan does not have any payments due on it until you die, sell the home, or otherwise permanently move out of the home. The more money you take out of the home the larger the dept the grows and the smaller your equity becomes (reverse of a traditional mortgage)
This is a huge help to the senior citizen who needs the money from the home equity to supplement living expenses.
The Reverse Mortgage is Here Just in Time for Baby Boomers
It is not a coincidence that the Reverse Mortgage was introduced to the market just before the first of the baby boomers are entering their retirement years. Baby boomers in record numbers are saying that they intend to stay in their homes and live independently for the remainder of their years. At the same time, there are millions of baby boomers who have not built a sufficient retirement account that will afford them the lifestyle they want. Add that to the fact that the future of Social Security is tenacious at best, and obviously other solutions are going to have to be explored.
The reverse mortgage is one opportunity for retired people to get money to live on out of the equity that they have built in their home. And it is expected that many people from the baby boomer generation will take advantage of a reverse mortgage.
Drawbacks to a Reverse Mortgage
If you carry a Reverse Mortgage for too long, you could use up all of the equity in your home. In which case, at the time of sale, all of the proceeds would go to the pay off the debt. This could be a problem if money from the sale of the home is needed to pay for nursing home costs, medical expenses or burial expenses. Additionally, there are some economists who predict that the Reverse Mortgage will lead to generations of people passing on and not having anything to leave to their heirs besides debt.
