This post was contributed by a community member. The views expressed here are the author's own.

Health & Fitness

Wright: Reverse Mortgages - The Right Choice for Many

The facts about reverse mortgages.

For many people of retirement age, social security, pension and investment income may not be enough to provide for everyday living expenses. Others find they can handle a typical monthly budget, but lack the reserves needed to cover extraordinary expenses such as unusual health expenses, large home repairs or even a simple annual vacation. 

For years the only choice for many homeowners was to either sell or apply for a traditional first mortgage or home equity. Selling can be an undesirable option and more recently stringent mortgage guidelines have made traditional financing not realistic for a lot of people. More recently a growing number of consumers have been using reverse mortgages to address these issues, enabling them to plan long-range into their retirement.

Although reverse mortgages are not new to the market, there is still a lot of confusion and misinformation about them.  Here’s a quick summary that should help clear up some of the facts.

Find out what's happening in Southamptonwith free, real-time updates from Patch.

• You must be at least 62 years old to qualify. If a couple owns the house both deeded owners must be 62.  

• The property must be a primary residence

Find out what's happening in Southamptonwith free, real-time updates from Patch.

• How much an applicant qualifies for is strictly based on age (the youngest owner in the case of a couple), the value of the house as determined by an appraisal and the type of  loan selected by the applicant. 

• There are no income or credit score requirements.

• The bank does not “own” your house. The lender files a mortgage on the property and the deed remains in the owner’s name. 

The borrower can choose one of several ways to receive the funds:

• One- time lump-sum payment at closing.

• Fixed monthly payments over a preset time period

• Line of credit. Funds can be drawn by the homeowner, as needed.

• A combination of both. 

Closing costs vary with each program option and should be considered when choosing a product that best suits the financial needs of the homeowner. 

At the time of the closing all liens on the property must be paid. Once funds are taken the interest is accrued and added to the outstanding principal.  

• Interest accrues only on proceeds used and no payments are made during the loan. 

• The total of principal and interest is paid only when the loan is due — upon sale of the home, death of the borrower (in the case of a joint loan a surviving spouse is not required to pay the loan back) or when the borrower ceases to occupy the house as a primary residence for 12 consecutive months.

• The amount owed can never exceed the value of the house if the decision is made to sell the house, either by the borrower or the heirs.

• If heirs decide to keep the house the loan must be paid off.

Despite concerns by many homeowners regarding reverse mortgages, the consumer is well-protected. 

The program guidelines and costs are well-regulated and there is a wealth of information available. Consideration of a reverse mortgage is a serious decision, one that should be discussed with your financial planner, CPA, attorney or heirs. It can be a valuable tool and an enhancement to a long-term retirement plan

We’ve removed the ability to reply as we work to make improvements. Learn more here

The views expressed in this post are the author's own. Want to post on Patch?