What Is A Reverse Mortgage and Is It Right For You?

Answer 1

Many senior citizens are having difficulty making their mortgage payments during these difficult economic times. In addition to their increasing living expenses, medical needs and dwindling savings, their incomes are fixed or decreased. They don't want to give up their home, but making their monthly payments means going without other necessities and/or no money for entertainment or leisure. Reverse Mortgage may be an option.

A Reverse Mortgage is a low interest loan available only to senior age 62 or older who own their home. The home is used as security for the loan. The loan does not have to be repaid until the homeowner is deceased. The estate of the homeowner has six months to pay back the loan or sell the home to pay the loan. Once the Reverse Mortgage Loan has been repaid if there is any money leftover, then it will go to the estate. The estate, however, is not responsible for repaying any deficiency if the home does not sell for enough money to cover the loan. The lender will have to take a loss.

The amount given to a homeowner is decided by several factors. The homeowner's age (min. required 62), the current interest rate, the dollar amount that the home is appraised for, and lending limits that are set by the government. In addition to these factors is whether or not the home has an existing mortgage that needs to be paid off. For example, if the homeowner owes $95,000 on an existing mortgage and the lender says they will allow a loan of $200,000, then the homeowner will receive the balance after the mortgage has been paid.

In certain circumstances it may not be beneficial to get a Reverse Mortgage. For example, if the homeowner wants to pass the house down to a friend or family member. This person would have to pay off the Reverse Mortgage Loan in order to keep the home. If the home owner is not having difficulty making the mortgage payments, but needs a little money to do some repairs or improvements. In this case a home equity loan may be beneficial. If the homeowner has a considerable mortgage on the home and it is not worth much more than the mortgage. Then a Reverse Mortgage may not be an option. Those considering a Reverse Mortgage should talk to their financial advisers, their families and/or an attorney before making a final decision.