Debt Free

Just what is a reverse mortgage, why would you want one, and how can it benefit you? Why the heck would someone get a backwards mortgage in the first place? Good question. A reverse mortgage is a home loan, just like a traditional 2nd mortgage or home equity loan. With a reverse mortgage you can turn the equity you've built up in your home into cash you can use now. The difference with a reverse mortgage is that the debt doesn't need to be repaid until the home is sold or the mortgage holder dies. For certain people that can be a tremendous benefit.

By law, the reverse mortgage is limited to those over 62 years old. It can be a boon to senior citizens on fixed incomes. In many cases, their retirement, pension, and social security allows them limited financial freedom, but they are sitting on hundreds of thousands of dollars in home equity. That equity does them no good if they don't want to move out of their homes. A reverse mortgage will allow them to tap that home equity for necessities, medical care or to improve their standard of living.

The downside to reverse mortgages is that closing costs tend to be higher than traditional mortgages, on the order of 5%. Don't worry, I'm sure we'll start hearing those infernal mortgage company radio ads any day now where they offer to pay your closing costs. We can only hope we get a bit of a reprieve in this area for a while, at least. It can really help in many cases, because, since the creditor isn't required to pay back the loan until they're out of the home, there'll be no mortgage payments. In fact, there will be, but they'll be coming to the homeowner. A nice change, no?

I got's to get paid! Normally there are several options available when it comes to receiving the money from a reverse mortgage. According to HUD, the federal agency that insures reverse mortgages, you have the following payment options:

• Tenure - The borrower recieves equal monthly payments. You can continue to receive these payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

• Term - equal monthly payments for a fixed period of months selected (The term).

• Line of Credit – This is like a HELOC, where the borrower gets unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.

• Modified Tenure – This an option to receive both a regular, monthly income and be able to tap greater amounts of home equity when desired. It's a combination of line of credit with monthly payments. The borrower will receive the monthly payments for as long as at least one of them resides in the home.

• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
  

For many senior citizens the reverse mortgage can be a godsend. In many cases real estate taxes are taking a larger and larger bite out of their fixed incomes. If they want to stay in their beloved home, a reverse mortgage may be the only option. If your kids don't mind you spending their inheritance, it's probably a good one, just watch the fees.