If you own a home, you have been in a forward mortgage and you know how it works. You borrow money for a home and then pay it back over a set schedule, often for a full thirty years.
Most people view reverse mortgages as new financial tools. In truth, they have been around for over 50 years. As more people try to figure out how to access the equity in their home, the reverse mortgage is seeing a renaissance.
The government and various groups have worked long and hard to eliminate bias in the country. It is somewhat ironic that the reverse mortgage contains a legal bias. Yes, you can only apply for it if you are older than 61 years of age.
In a reverse mortgage, you have equity in your home and a lender is willing to trade you cash now for a chunk of that equity. Yes, you are essentially selling the property to the lender, which is making payments on it over time.
The nature of the payments, of course, is unique. You can have the lender make monthly payments to you much like you did to your original mortage lender. Alternatively, you can ask for a lump sum payment.
The good news is you need not pay back the money the lender is paying you. Instead, the lender will recover the money when the home is eventually sold. The bad news is you are limited to selling only fifty percent of the equity you have in your home.
With the massive amount of advertising for reverse mortgages available out there, you might think there are no negatives to the loan. In truth, there are more than a few and you really need to take them into account. Most reverse mortgages are not good deals.
The first problem with the reverse mortgage is your heirs. If you hope to leave them with something, you need to realize the reverse mortgage lender is going to take a large chunk of the equity in your home when you sell it or pass on.
A huge problem with the reverse mortgage is the expense. They are incredibly expensive, often costing tens of thousands of dollars to institute. The FHA has even started overseeing them to protect consumers.
Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.
