Reverse Mortgages

If you are age 62 or older, you may be eligible for a reverse mortgage rather than a home equity loan. A reverse mortgage gives you money that you don’t have to repay until you move, sell your house or pass away. You can choose to take the money in a lump sum, in monthly payments or a combination of both.

Many consumer advocates urge caution if you are considering a reverse mortgage, because they often include very hefty up front fees, representing 10 percent of the debt and more, and the terms are often variable rate. Also, the debt associated with the reverse mortgage grows rapidly due to compounding, making it very difficult, if not impossible, to undo. The reverse mortgage industry has expanded quickly in recent years, along with scams that have caused some seniors to lose their homes. In addition, reverse mortgages are sometimes marketed with high-commission annuities and insurance policies which promise a fixed income for life, but come at a high cost to you.

Under a reverse mortgage, the money you are being paid is coming from the equity you have already earned/built in your home. However, you need to be careful because of that reason – your home’s value may decrease or remain the same after you take a reverse mortgage. Additionally, if you take monthly payments and inflation continues, you may not be able to continue living the same lifestyle year-to-year, because you'll be receiving a fixed amount as costs rise.

• The thought of receiving payments from your lender may sound attractive, particularly if you’re a senior citizen who finds yourself in a “house rich, cash poor” situation. But reverse mortgages aren’t for everyone. The U.S. Department of Housing and Urban Development lists the Top Ten Things to Know if You’re Interested in a Reverse Mortgage.
  

• The Federal Trade Commission warns that reverse mortgages may not be right for everyone, and encourages you to “get the facts” before you cash in on your home’s equity.

• The New York State Banking Department has created a guide, The Reverse Mortgage, to help you decide if this product is right for you.

 

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