Reverse mortgages have been around since the late 1980s, but it wasn't until fairly recently that AARP and the FHA combined efforts to revamp them into something which was both safe and advantageous for senior citizens.
A reverse mortgage is a special type of loan available to seniors age 62 or older. It allows you to convert your built up home equity into available cash to use as you wish. This loan is unlike a traditional loan or 2nd mortgage in that you are not required to repay the loan until the house is no longer the borrower's primary residence.
Fact-a reverse mortgage will pay you as you continue to live in your house. Initially the concept seems odd at first and seems to confuse many people, and perhaps it would have been better had they chosen another name like Home Equity Loans For People Over 62
The process works in a reverse fashion from a typical mortgage. Instead of the homeowner paying a mortgage, the bank pays the homeowner. A senior citizen with a reverse mortgage will receive payments from the bank. The homeowner can receive the money in various ways - in monthly payments, a line of credit or receive the money in one lump sum.
The highlights of reverse mortgages are:
- You can convert some of your homes equity into tax-free cash.
- You don't have to repay any of the loan for as long as you continue to live in your home.
- The title to the home remains in your name. The lender does not become the owner.
- The money you receive from your reverse mortgage does not affect your Medicare or Social Security.
- Your heirs will be able to inherit the home after you pass away but they will also be responsible for repaying the bank through the sale of the home or from the estate.
- You can never owe more than the value of your home.
- You can sell your home anytime you want.
There is an endless list of reasons people may choose to apply for a reverse mortgage - home improvement plans, health care expenses, money to supplement a retirement income that is not meeting current expenses or keeping up with inflation. Although many are skeptical at first, they soon realize the benefits of converting part of equity built up in their home into tax-free income without having to sell their home.
Obtaining a reverse mortgage should not be thought of as a tool only for seniors in desperate financial situations. If your situation fits, a reverse mortgage can make your senior years much more comfortable. It can give seniors a peace of mind that they may not currently be experiencing.