What Are the Benefits of a Reverse Mortgage Loan?

By Patricia Pearce

Reverse mortgage loans have been around for a while, but until recently they haven’t been as popular as they are now. These types of loans are designed for use by senior citizens, 62 years of age or older. The general idea is that a lot of people have lived in their homes for years, paid their mortgages, and built up quite a lot of equity. They don’t want to move, yet they can’t have the benefit of the equity they’ve created.

Reverse mortgage loans let them tap into that equity.

In some sense, reverse mortgage loans are kind of like home equity loans, which let you get money out of your house without selling it. Unlike home equity loans, however, there are no minimum or credit requirements.

The reason these types of mortgages are called “reverse” mortgages is because instead of you paying the lender, the lender is paying you. As the lender pays you, your equity in the house decreases. In effect, you’re creating a larger and larger debt that your house will eventually be sold to cover.

You can use this money for anything you want, but usually lenders don’t want there to be any other mortgages in place on the property. So, reverse mortgages are available for folks who own their homes free and clear.

Getting the proper counseling for reverse mortgages is important. You can get counseling from a HUD approved counseling agency. You don’t have to meet with these people, just talk with them on the telephone, if that’s easier for you.

Counselors will tell you about several options you might have. They will want to discuss other avenues to get money (other than taking it out of your house), property tax deferral programs, if there are any, and the financial and tax implications of the reverse mortgage.

As you can see reverse mortgages are not for everyone! But if you have a lot of equity in your house and you don’t have a lot of other income coming in, a reverse mortgage might be the ticket.

This is not something you just want to jump into. You’ve worked long and hard to build up the equity in your house, and if you’re like many Americans, your home’s equity is by far your largest investment. You certainly don’t want to squander it. So, you want to talk with a number of potential lenders, a counselor, and family members who might be able to help you think through all of this. Once you spend the equity in your home, it’s gone. This might work for you, or it might now, but a reverse mortgage certainly is worth looking into.

To learn more about finding the best mortgage for you and your needs, visit my blog, Best Mortgage Guide.

Patricia Pearce is a consumer advocate and educator. She runs several online sites devoted to empowering consumers to keep more of their money.

Photo by Mario Antonio

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