Reversing Your Mortgage for Retirement Income

By: Barry Waxler

The reverse mortgage is getting a lot of play these days in the media, but what is it exactly? Let's take a closer look at it and some of the issues that arise.

The reverse mortgage is exactly what it sounds like. Instead of you making payments to a lender, the lender makes payments to you. While that may sound fantastic, the similarities pretty much end there.

As payments are made to you, more and more of the equity in your home is converted into debt. That debt grows at an interest rate that is typically one to two points higher than a normal mortgage or refinance.

A thought that may have popped into your mind is what ultimately happens when the equity in the home is used up? If there is no equity, do you still own the home? Are you expected to pay off the loan? Do you get evicted?

This is exactly what happened when these loans were first offered. This unsavory result did not stand. The federal government got involved. In most current situations, you are allowed to remain in the home, but payments to you stop.

Another common question is how big will the monthly payments made by the lender be? There are a number of factors that go into the determination. These include the amount of equity in your home, the interest rate charged on the loan, the costs and the fees.

While you should be concerned about how the payment is calculated, it is important to understand there is an easier way to determine it. Just ask to see examples. Multiple programs are available and they should show you the estimated payment amounts.

What happens if you realize you should have gone in a different direction? Can you refinance your home to get out of the loan? Yes, so long as you pay off the amount due on the reverse mortgage. Make sure to check the fine print for prepayment penalties.

Real estate is beautiful because it appreciates most of the time. After getting a reverse mortgage, can you still tap this appreciation? The answer is usually yes, but you may have to refinance the property to do so.

What happens when I die? The reverse mortgage is handled no different than any of your other assets. It becomes due. This means your heirs must either pay it off or sell the property. If they sell the property, the reverse mortgage balance is paid off.

The reverse mortgage is undoubtedly a new toy in the loan industry. That being said, it is very expensive. For a majority of people, it is a bad choice compared to other alternatives that are cheaper and produce more income.

Article Source: Loan Info Center

Get more information on reverse mortgages at UFCAmerica.com.
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