Reverse Mortgage: Too Good To Be True?
Reverse mortgages are becoming more and more popular these days, but are they scams or are they legitimate?
Is it actually possible to sell your house back to the bank and still retain the deed to it? Will the bank really pay YOU the mortgage payments? Let’s review what a reverse mortgage is so these questions can be answered.
A reverse mortgage is a loan that is structured like a mortgage, with YOU as the lender and the BANK as the buyer.
In the US, homeowners wanting to initiate a reverse mortgage must be at least 62 years old and own all or most of their home. The qualifications may differ in other countries. These backwards mortgages are usually performed through a bank or broker. The senior citizen homeowner essentially sells his or her house to the bank, in return for receiving periodic mortgage payments. These payments can be structured as monthly payment, a lump sum, line of credit or a combination of all three methods.
Why would a senior citizen want to have a reverse mortgage?
A reverse mortgage provides a constant and dependable stream of retirement income. Many retirement plans such as 401(K) or Individual Retirement Accounts (IRA) generally increase in value, but are still tied to stock market interest rates. The amount of money they provide during retirement can vary, sometimes drastically.
Social Security, Medicare, and other U.S. government programs have endangered funding, which makes them not be reliable sources of income. A reverse mortgage can supplement a senior citizen’s income. The amount depends on the homeowner’s age, equity of the house, interest rate on the loan, closing fees, and a few other local/state factors.
One very common misconception about the reverse mortgage is that the bank eventually takes ownership of your house. This is not true! The deed remains in your name throughout the entire term of the process. Now, there is interest on the loan payments, but it is deferred until the loan is repaid.
The homeowner can remain living in the house during the entire term of the reverse mortgage. The loan becomes due only when the homeowner moves out, such as moving into a nursing home, or is deceased. At those times, the survivors can repay the loan themselves, if they want to keep the house. They can also sell the home and repay the loan plus the interest in full.
The money paid to the homeowner as mortgage payments must be repaid to the lender when the loan becomes due.
These odd mortgages can provide much needed financial support during retirement. It is a time when medical costs are likely to increase, so an additional source of income can really help. One can utilize a reverse mortgage to help yourself or your aging relatives to gain the financial security in retirement that they worked so hard to achieve.