Reverse mortgage: Cash bonanza for
mortgages: What are they and how do they work?
were once a financial novelty and have now entered the home loan
mainstream. This is very good news for senior homeowners who have to
be 62 or older to qualify. Reverse mortgages are one of the few ways
that seniors can cash out part of the equity in their home without
moving or incurring loan payments.
are in essence mirror images of regular mortgages. As unbelievable
it sounds, rather than making payments to a lender, the lender
actually makes payments to you in a lump sum in monthly installments.
The best part is that you actually don't have to repay the loan as
long as you live in your home. The reverse mortgage is only repaid
from the sale of your house, or after you move or die.
The only real
negative aspect of reverse mortgages is that they usually have high
upfront closing costs. Those charges have been falling, but even at
5% of a home's value (which is about the going rate), reverse
mortgages looks so much better when the alternative is to sell and pay
6% to a real estate agent.
What if the home’s
value at the time of the sale doesn't cover the balance of the reverse
If the home's
value at the time of sale doesn't cover the balance of the reverse
mortgage, the lender is actually on the hook for the loss rather then
the homeowner or his/her heirs. That is absolutely excellent downside
protection. The upside is even better: If the property's value rises
over the years, the senior homeowner or his heirs can keep all of
those profits after paying off the reverse mortgage. In other words,
you can cash in on cashing out even when the market continues to trend
upward. Overall, reverse mortgages are an excellent opportunity for
seniors to take cash out on the equity of their home without moving or
having to sell their property.
Money magazine, August, 2005.
information and webpage by
Paul Susic Ph.D. Licensed Psychologist
Senior Care Psychological Consulting 2451 Executive Dr. Ste.
103 St. Charles, Missouri 63303 (636) 300-9922