Understand Reverse Mortgages Before You Leap by Lisa HoltonHome equity can add up to between 30 to 40 percent of the net worth of most seniors. For individuals or couples at least sixty-two years of age, a reverse mortgage can be an option to turn equity into tax-free cash without forcing a senior to move or make a monthly payment.
There are plenty of television commercials advertising reverse mortgages as a great solution for older Americans, and they really can be. But they require a lot of careful consideration.
AARP has a reverse mortgage calculator you can use online. Click on www.aarp.org/revmort.
Here are the differences between a reverse mortgage and a bank home-equity loan. With a traditional second mortgage, or a home-equity line of credit, you must have sufficient income to qualify for the loan, and you are required to make monthly mortgage payments. A reverse mortgage doesn’t consider income. You don’t make payments because the loan is not due as long as the house is your principal residence. A reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in any of a number of forms. Options include a lump-sum cash payment, a monthly cash payment, a line of credit (which tends to be the most popular option), or some combination of these.
When the owner dies or moves away, the house can be sold, the loan paid off, and any leftover equity value can go to the living owner or the designated heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within six months, with the option of two ninety-day extensions that must be applied for.
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