Reverse Mortgages Are Nothing to Be Afraid Of

The first time I heard the term "reverse mortgage" was during a job interview. Sitting nervously, I was asked if I'd ever heard of a reverse mortgage. I responded that I hadn't. Now that I've educated myself on the product, I realize many of the seniors I've talked to have the same vacant reaction I'd once had to the term. But that’s not how it has to be. Reverse mortgages are not inherently complicated and scary, and it is my hope that this column will help make them easier to understand.

What Is a Reverse Mortgage?

The concept behind a reverse mortgage is simple: it enables senior borrowers to take the equity in their homes and convert it into cash. This concept is sometimes referred to as "letting your home pay you." A reverse mortgage does not require the borrower to make any payments to the lender until he or she sells the home or passes away (or the loan becomes otherwise due). No monthly payments. No annual payments. Nothing due to the lender. Furthermore, instead of making a monthly payment to a lender, many borrowers choose to receive a monthly payment from the equity in their home. For example, a borrower might decide to receive $1,000 a month every month for the rest of her life until her home runs out of equity. Other borrowers might choose to receive a large lump sum payment. Still others might keep the money in a credit line that they can draw upon as needed. The method of payment is at the borrower's discretion. .

When Do I Have to Pay It Back?

Like other loans, a reverse mortgage is eventually due back to the lender. This typically occurs when the borrower passes away, sells the home, or no longer uses the home as a permanent residence. At that time, the loan is usually repaid through the sale of the home. However, heirs could choose to refinance the reverse mortgage into a conventional mortgage or pay it off with cash and keep the home. At no point in a reverse mortgage is a home ever sold to the bank.

Some of these concepts may sound confusing. They will be discussed in more detail in future articles in this column. For now, it is important to know that a reverse mortgage is not some enigma to be feared. While reverse mortgages are not right for everybody, they are a valuable option that seniors should consider when planning their retirement finances.

Where Can I Find More Information?

There are many resources at the immediate disposal of seniors and their families. When I am not writing for Gilbert Guide, I write for a nonprofit Web site for people seeking reverse mortgage information. At www.reversemortgageguides.org, we feature a reverse mortgage calculator, glossary, and discuss the pros and cons of this product, among other things. However, we are not the only site offering consumer education out there. Some other good ones include www.reversemortgage.org, a site sponsored by the National Reverse Mortgage Lenders Association (NRMLA), AARP's reverse mortgage site, and the Department of Housing and Urban Development's site. Whatever resource(s) you use, it is prudent to consult more than one source of information when considering a reverse mortgage. In addition, mandatory HECM counseling for borrowers will help ensure that you understand how the product works before getting a reverse mortgage.

And finally, while reverse mortgage fraud exists, and future columns will include ways to help identify and avoid being a victim of scams or fraud, it is important to note that these cases are not common. Reverse mortgages don't have to be scary. I'm here to help.

Posted in Reverse Mortgages, Reverse Mortgages, Reverse Mortgages as an Option