Reverse mortgages can turn your home’s equity into spending dollars
If you are retired, you may have discovered that your current income is insufficient to meet your living expenses, especially if you have unexpected medical or funeral bills. In many cases, either liquid assets or insurance will be sufficient to meet these needs. But in some cases, neither of these avenues is available. Therefore, in order to meet your financial obligations, you may need to examine an important source of equity that you have probably spent much of your life accumulating the equity in your home. New mortgage products that are now available on the market can be an invaluable source of tax-free income for needy seniors like you. These programs are for seniors aged 62 and older that have either paid off their homes or have very low mortgage balances.
There are two main types of reverse mortgages available to the public: federally insured reverse mortgages backed by HUD, and retail reverse mortgages backed by corporate lenders. These mortgage products quite simply are designed to pay out a portion of your home’s equity in cash. This will either take the form of a single, lump-sum payment, a set monthly payment (that continues either for a set period of time or for as long as you own your home) or most commonly as a line of credit. For example, say you are living on a fixed income. Then, a health issue arises that requires monthly bills to be paid, which are not covered by your insurance. If you have no liquid assets set-aside to cover these costs, then you could take out a reverse mortgage on your house and receive a tax-free monthly (or single) payment to match your expenses. Of course, the amount you are eligible for will obviously depend on such factors as the value of your home, current interest rates, your age and local lending limits. A key advantage that these programs offer is that there is no medical underwriting of any kind involved, so any medical conditions that you may have will not prevent you from qualifying. There are also no limitations on how the proceeds from a reverse mortgage can be spent; the funds can be used for anything. If you are looking for an additional source of funds and would like to know more about whether a reverse mortgage is right for you, you can get no obligation quites form reverse mortgage lenders in your area.
Note that as with any mortgage, there are points and other costs associated with the origination of the mortgage. Interest rates for reverse mortgages generally are higher than traditional home mortgages and home equity loans. Additionally, fees and expenses associated with reverse mortgages are also higher than fees typically applied to traditional mortgages – sometimes as high as 4% to 8% of the mortgage loan amount. In addition, while typically there are no taxes on the proceeds of a reverse mortgage, the income or lump sum received could impact eligibility for various state and federal benefits, including Medicaid. Further, depending on the laws of a state, a reverse mortgage may not enjoy the same home-equity protection that would otherwise apply if a homeowner had a health emergency and needed to enter a nursing home. Reverse mortgages should not be used to speculate with home equity.
Before you obtain a reverse mortgage, federal rules require that you have an education session with a government appointed consultant to make sure you understand all of the terms and so that you can ask your questions to an impartial source.
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Tags: reverse mortgage
March 2nd, 2009 at 10:04 pm
My grandmother actually got a reverse mortgage on her house and got over $120,000 back!
I was amazed that she could do this, but it’s sad to think she did it because she thought she wouldn’t be here to pay it back.
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March 18th, 2009 at 4:34 am
I just started researching the benefits of a reverse mortgage.My in-laws and my parents have both showed interest in them and so I’ve been looking into it for them.
So far they seem to be a great opportunity
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April 5th, 2009 at 7:25 am
I never even thought about how a reverse mortage would effect aid from states. Sounds like people should make sure that one does not effect any aid they get before they apply for one.
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May 9th, 2009 at 6:26 am
I would use caution before implementing a reverse mortgage into my retirement strategy. I think it is very important for people to educate themselves before altering their retirement plans.
Reverse mortgages do look good on paper and in black and white. But if it impacts your eligibility for Medicaid, I would not do it without seriously weighing the options.
May 20th, 2009 at 12:02 am
Reverse mortgage is a useful estate planning tool that banks and financial institutions ought to offer making available to seniors. It’s a great security for them to ensure the delivery of their pensions in the amounts they thought forthcoming.
July 8th, 2009 at 3:27 pm
When did reverse mortgages come to be? I don’t recall hearing about them until just the past few years.
- Heartland Energy Colorado
July 15th, 2009 at 8:19 pm
This sounds scary. If you are getting the funds to cover expenses that you are unable to pay, and the interest rates are high, how are you going to pay this back? Seems to me like you are just digging your hole deeper.
July 16th, 2009 at 2:46 am
The Money you receive with a reverse mortgage can be used for virtually anything. You can use it for basic necessities, or for luxury items you couldn’t otherwise afford.
July 21st, 2009 at 11:58 am
Graham, reverse mortgages have been around since 1961, but have recently gained in popularity because of the government safeguards that have been put in place. The federally-insured Home Equity Conversion Mortgage makes a lot of sense for some people and you can learn more about it at this Reverse Mortgage resource.
Also Urnestegg, as long as you stay current on taxes, insurance, and repairs on your home, you will never have to repay these funds as long as you live in the home. This is also what is called a non-recourse loan which also serves as a consumer protection.
August 6th, 2009 at 4:48 am
I have a blog, which is specialized in sharing information about the reverse mortgage loans. From the previous posts I can see, that reverse mortgages are not familiar to many seniors.
But the formula is simple: you use the money from the equity of your home. This equity you have collected during the days, when your salary=income was better and now, when it is lower, you want to enjoy abóut the same standard of living.
You can do it by taking the reverse mortgage loan. This loan and the interests will be paid back, when you move away from your home, so you do not have any monthly payments. These sums can never be higher than the value of your home. However, if they are, the state will pay the difference. Before you take it, talk with the family and with the experts.
August 17th, 2009 at 1:31 am
Hi
Great post reverse mortgage is good news for someones and mostly not like this.
August 18th, 2009 at 2:11 pm
Thanks for the post on reverse mortgages. I handled these at my mortgage company fora while and people really have no idea what they’re asking about. The more reverse mortgages are talked about, the better it is for the industry!
August 24th, 2009 at 1:11 am
I am glad to see that there is an established method of raising funds for the elderly which is in their control. Being independent in your later years is very important for your self esteem as we all know it costs money to be looked after and funds from the government might be running lowas our aging population grows every year. Money would be needed for equipment to cater for the elderly and for training for relatives to care for their parents.
Can these type of mortgage products be bundled with other products on a large scale to give real value to the elderly? For example financial institutions combining with healthcare organizations to deliver an overall package is this possible?
August 30th, 2009 at 4:44 am
There are a number of misunderstandings about reverse mortgages and a lot of seniors are afraid to move ahead with them. I think most of it has to do with a limited number of scams that have been published in the media over the last few years. There is also that “it is too good to be true element” and in general seniors are afraid of being taken advantage of.
It is a great thing that you are publishing information on about reverse mortgages on your blog, since real facts are the main way of combating this misunderstanding.
As reverse mortgages are becoming more acceptable, Ive seen more and more senior inquire about the possibility of possibly doing it themselves.
August 31st, 2009 at 3:49 am
Reverse mortgages are in use from 60’s, but have recently gained in popularity because of the government interference in safeguarding. The Money you receive with a reverse mortgage can be used for virtually anything. You can use it for basic necessities only. Great Post….
September 6th, 2009 at 2:43 am
Reverse mortgage is better especially in the condition of recession.
September 17th, 2009 at 9:16 pm
Reverse mortgage is a great idea if you own your home outright. The other option is sell your house straight out and then just move into a nice assisted living center or a low maint. apartment. Many times the second option is a much better one…you keep all the value of your house and the bank does not take the value out of what you own. Of course…you can always just run your credit card up forever. When you pass away the card companies end up writing this off. They try and scare relatives into paying them off but that is not legal at all. Not your fault dad went on a spending spree!
October 8th, 2009 at 10:29 pm
I was not aware of this type of mortgage. After reading this post I informed my retired parents about this type of program. They weren’t aware of it and got in contact with a mortgage broker you is going to meet them to discuss their option. I will have to follow up with them to see if it’s to their benefit to take out one of these mortgages.
October 11th, 2009 at 3:27 pm
Reverse mortgages can be valuable. Honestly though, I do not understand why a senior would get a reverse mortgage instead of just selling the house and moving into a retirement home. If they are that old they would be better off in assisted living and they do not have to worry about getting hosed by the loan terms.
October 12th, 2009 at 8:36 am
I couldn’t agree with reverse mortgage, its like digging yourself another hole, with this you might end loosing your property..
October 12th, 2009 at 4:09 pm
I think Reverse mortgage is worth the juice. but interest rates are higher so one should take everything in to consideration before going for it.
October 22nd, 2009 at 9:07 pm
A reverse mortgage can be a great idea if other funds are not available for retirement. There will be a lot of baby boomers who don’t have enough to retire, but they may have equity in their home, or even own it outright. So tapping this can allow them to stay in their home and maintain the same lifestyle as before.
October 23rd, 2009 at 1:48 pm
So what happens when the loan has to be repaid? The house just gets sold?
October 24th, 2009 at 11:43 am
My mother is thinking of doing a second mortgage in 1 months when she turns 55. The home has a tax lien. How would this impact getting a darn mortgage, if it affects it at all? (possibilities of getting a reverse mortgage)
October 25th, 2009 at 1:29 pm
I think reverse mortgage can be a really good solution for people who invested all the money in their own home and at retirement the money for daily life is not enough.
October 26th, 2009 at 5:53 am
It may be an option for my parents except my Mom is on Medicaid and I am not sure if they could do both.
October 26th, 2009 at 3:40 pm
If you can’t afford your normal living expenses is it really wise to raise your debts with another small mortgage payment every month?
I think them best option would be to sell your home and find something more affordable.
If you can invest the money from the reverse mortgage and make a return great enough to cover the payment and have more left over at the end of the month it is a great idea.
October 29th, 2009 at 7:47 am
Getting the ownership for home is really attractive for every one with reveres mortgage…
October 30th, 2009 at 12:40 am
Interesting post. I am based in the UK and I have heard of reverse mortgages but didn’t really know what they were. Over here, like everywhere, there are going to be problems as the population lives longer and state aid to this ageing population reduces. We have a system called equity release over here, which sounds similar to reverse mortgages. I think it is important to say that we all need to start putting money aside as young as possible for retirement. The longer we leave it the harder it wll be to guarentee a comfortable post-work income!
December 1st, 2009 at 7:05 am
there are always few things u can do;
SELL the house- and for the money- stay at the retirement house- or
better one…you keep all the value of your house and the bank does not take the value out of what you own.
January 4th, 2010 at 2:13 am
Reverse mortgage is a useful tool that banks and financial institutions ought to offer making available to senior publics.Its advantages is explained clearly.
January 4th, 2010 at 12:06 pm
Was not familiar with reverse mortgages. Great info! Thanks!
January 5th, 2010 at 11:38 pm
As with many things the reverse mortgage is a great mortgage for the right person. There are many misconceptions about the reverse mortgage but in the right situation a reverse mortgage can be a god send. I have had clients who were near foreclosure that not only were able to pay off their mortgage but also received cash back.
Roy Paeth
Chicago First Time Home Buyer
January 11th, 2010 at 1:38 pm
In my experience the cost of a reverse mortgage far exceeds other alternatives such as a refinance or Line of Credit. I think its a well packaged (marketing) product but with a good budget and some discipline managing your own money is a better route.
January 19th, 2010 at 9:11 pm
What do you think of the concept of using the reverse mortgage, or people’s experience with it, as a learning tool of what not to do? Wouldn’t the reverse mortgage, or need for it, be one of the biggest reasons to keep your home and your home equity separate. The rate of return on equity is zero.
February 5th, 2010 at 5:04 pm
The reverse mortgage industry has been plagued over the years by confusion, rife with reports of predatory lenders preying on the elderly. Today, reputable lending institutions require that borrowers receive counseling about the risks and pitfalls before committing to a reverse mortgage.
February 7th, 2010 at 1:02 pm
This is the standard line: It is a time when medical costs are likely to increase, as well as unexpected costs can creep up. Use a reverse mortgage to help yourself to gain the financial security in retirement that you worked so hard to achieve. But i;m ot sure it;s the best way to tap your asset.
February 8th, 2010 at 2:24 pm
One thing I’ve noticed about reverse mortgages for seniors is high closing costs. Its not uncommon to pay origination fees that are about double what they are for conventional mortgages and mortgage insurance. The interest rates are adjustable…FYI.
February 11th, 2010 at 7:50 pm
Reverse mortgage is a useful estate planning tool that banks and financial institutions ought to offer making available to seniors. It’s a great security for them to ensure the delivery of their pensions in the amounts they thought forthcoming.
February 15th, 2010 at 5:10 am
Are there reverse mortgages that will let the brower past the house to aires, rather tan sell after death