Learn More About Reverse Mortgages
Reverse mortgages in the U.S. grew by 77% from 2005 to 2006, according to the National Reverse Mortgage Lenders Association. It's no wonder – a reverse mortgage can allow mature homeowners to tap their home's equity without selling their homes. This is great news for retirees who may not qualify for home equity loans or refinanced mortgages, yet may be faced with rising health-care costs and insufficient retirement funds.
A Loan Against Your Home
A reverse mortgage turns the equity of your home into available cash. It works the opposite of a typical loan, in that the lender makes payments to you, rather than you making monthly house payments. You maintain ownership of your home, and no principal or interest payments are required for as long as you live in your home.
The loan is repaid when you cease to occupy your home as a principal residence, whether you sell the home, permanently move out or pass away. If the amount remaining on the loan at this time is less than your home's value, the difference is given to you or your estate. You will never owe more than the amount your house is worth, and the lender cannot seek repayment from income, other assets or heirs.
You have the option of receiving your payments as:
•A single lump sum
•Fixed monthly payments (either for a set term or for as long as you live in the home)
•A line of credit, with a choice of when and how much your payments will be
•A combination of any of the above
Approximately 60% of borrowers choose the credit line option.* The older you are and the more valuable your home is, the larger your payments will be.
But, the Stakes Can Be High
Reverse mortgages may not be for everyone. There are a number of fees, including origination fees, mortgage insurance premiums, appraisal fees and closing costs, that can reach up to thousands of dollars. In most cases, these may be financed as part of the reverse mortgage. If you're thinking of leaving your home to family members, keep in mind that the house will be subject to the loan agreement in place and final value will depend on the equity remaining.