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Review of Reverse Mortgages

The topic of reverse mortgages can be confusing and it may be helpful to review the basic features and then determine if this is a financial product that is right for you.
Most homeowners are familiar with having a traditional home mortgage arrangement which means they are paying on a home loan for 15 to 30 years. So hopefully, when they reach their senior years they should be close to paying off the mortgage and should have acquired some equity in the primary residence. This is also the time that retired homeowners may need additional income and prefer not to sell their home. The reverse mortgage can also be used for home repairs or for paying off other debts such as medical bills or credit cards.
Reverse mortgages are available to those who are age 62 and older and want to convert the value of their home into an income stream or without selling it. The payout of the reverse mortgage can also be a line of credit or a lump sum.

This type of mortgage has no repayment requirement until the last homeowner leaves or sells the house (in the case of a married couple). So nothing is due as long as one homeowner is still living in the home.
In the case of the deceased homeowner, the heirs will receive the value of the home sold less the outstanding debt of the reverse mortgage. The reverse mortgage will be due all at once when the borrowers sell the home or move or are deceased. This may also be an important financial discussion for the family since the process of selling the home and paying off the reverse mortgage could be a burden for the homeowner’s children.
The amount that is available to borrow with a reverse mortgage will depend on the value of the home, the borrowers age and current interest rates. This should be reviewed during the application process and the home will also need to be inspected.
There are closing costs and other application fees and requirements for the reverse mortgage that makes this type of loan expensive. There is a requirement for a home appraisal, title fees and mortgage insurance. Be sure to research this financial decision carefully and consider the impact to the homeowner and family.
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