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How to Find a Financial Planner
What Is a Reverse Mortgage?
Dear Jeff:
I am retiring soon, and don't have a lot saved, but my home is paid for and worth about $130,000. What can you tell me about a reverse mortgage? Thank you for your response.
Jeff Says:
Reverse mortgages were designed to help people who need to unlock the equity in their homes to generate much needed income. Absent reverse mortgages, those in this financial predicament would either need to sell their homes or re-finance. Unfortunately, they are not usually in a position to qualify for the new mortgage.
With a traditional mortgage, the homeowner receives a lump sum when the loan process is finalized. He or she then pays it back with interest over an agreed upon time frame. The reverse mortgage works--you guessed it--in reverse. You borrow an amount typically on a monthly basis, so the loan amount and unpaid interest grow with each payment that is received. The entire amount of the loan and unpaid interest must be paid back in a lump sum at a specified time in the future. It could be a fixed period of time, but the balloon payment is most commonly tied to the borrower's death.
Reverse mortgages are a viable option for many, but the devil is in the details, as they say. Up-front fees are usually high and the terms can vary dramatically. Perhaps the final consideration is that the loan may ultimately be repaid out of the borrower's heirs' inheritance.
Also see Reverse Mortgage Lenders.
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