Reverse Mortgages

A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment.  The reverse mortgage is aptly named because the payment stream is “reversed.”  Instead of making monthly payments to a lender (as with a regular mortgage), a lender makes payments to you.

A reverse mortgage or reverse home mortgage is a great financial product for seniors to use in their retirement plan.

When looking for ways to get cash from their home, most people consider selling their house or borrowing against their home equity and making monthly loan repayments on a home equity loan.

With a reverse home mortgage, you get all the benefits of selling your house and all the benefits of getting a home equity loan – but you can still live in and retain ownership of your home and you don’t have to pay back the loan.  No matter how you structure a reverse mortgage, you typically don’t pay anything back until you die, sell your home, or permanently move out.  And, your ability to secure a reverse mortgage is not dependent on your credit history, income level, health or any other factors that might make a home equity loan expensive or problematic.

By converting your home equity into income, a reverse mortgage is a way to stay in your home and get cash to use for any purpose.  There are no restrictions on how you can use money from a reverse mortgage.

So what’s the catch?  To many, a reverse home mortgage sounds too good to be true.  The only big disadvantage of a reverse mortgage is the high closing cost–which is only problematic if you plan to stay in your home for a short period of time.  Generally speaking, if you don’t think that you will remain in the house for longer than another five years, a reverse mortgage might not be the most financially advantageous retirement income planning strategy.

To be eligible for most reverse mortgages, you must own and reside in your home and be a senior 62 years of age or alder.  In most cases, second homes, apartment buildings and homes less than a year old are not eligible for a reverse mortgage.

This article is from the California Consumer Report.

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