Reverse Mortgage

A Reverse Mortgage is a loan that you do not have to pay back for as long as you live. This is a loan for those who have plenty of equity in their home but do not have the income during their retirement years. A reverse mortgage gives these people the opportunity to turn this value in their home into cash without having to sell the home or take out a mortgage.

You must be at least 62 and have the home most or all paid off in order to take out a reverse mortgage. There are no payments on a reverse mortgage as the bank gives you the money and keeps the home when you die.

A reverse mortgage is the opposite of a "forward" mortgage of the mortgages we are used to dealing with.

In a forward mortgage, you make payments and the loan balance goes down and down until you own the home instead of the bank. With a forward mortgage the interest that accrues is figured into the mortgage payments so that at the end of the mortgage there is a zero balance.

With a reverse mortgage, you receive payments and the balance goes up until the bank owns the house. In a way this is like giving a mortgage to the bank to buy the house from you. Interest is added until the payments until the balance equals the value of the house and the bank owns it outright.

If you sell the house early because you are moving or have gotten ill and need to go to aretirement home, you will get to keep the difference between what the house sells for and the total of what you have received plus any interest to that date.


How you can get the money
There are 3 different ways that you get the cash with a reverse mortgage.

• A lump sum
• A regular monthly advance
• A credit line that you can draw against

HECM or Proprietary
HECM (Home Equity Conversion Mortgage) is the government insured reverse mortgage program.
A proprietary reverse mortgage is provided by a private lender.

An HECM is limited by the 203-b county limits as to how much you can take the reverse mortgage for, while the proprietary mortgae has no such limit. If you have a more expensive home, you should consider the propretary reverse mortgage.

The costs of an HECM are not inexpensive, yet the costs of the proprietary program tend to be even more expensive.

Note the difference in the credit line option. With the HECM, your credit line earns interest while currently there is no interest earning option for a credit line with the propretary version. This is very important because a smaller amount with the HECM may actually be worth more in the long run due to the interest earning potential. Do your homework and closely compare the difference on this point.




NOTE: If the home is not fully paid off, you must use a portion of the proceeds from the reverse mortgage to pay off the balance.
If you have reached retirement and do not have enough savings, but you have paid most of your house off, a reverse mortgage can be a very viable option for you to put your hands on cash for your retirement.

The option to receive monthly apyments in addition to other retirement checks may be the difference between living in retirement comfortably and stretching to make it.

Advantages of a Reverse Mortgage

• Turn equity into cash
• There are no monthly payments
• You do not need income to qualify
  
  Disdvantages of an Reverse Mortgage
  
• The bank keeps the home when you die
• In some programs the bank keeps all additional euity buildup even if you decide to sell the home to pay off the reverse mortgage
• If your heirs were planning on keeping your home after you die, they may not be agreeable.
  

More Information sources for Reverse Mortgages
Be sure to visit these sites as they have the most complete information online about reverse mortgages and all their advantages and disadvantages.

The AARP website has an entire section dedicated to reverse mortgages with very useful basic information at http://www.aarp.org/revmort/

Reverse.org is an independent website on reverse mortgages. This website has more detailed information than the AARP site.


Summary
A reverse mortgage can really be a saver if you have gotten to

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More Types of Mortgages

Fixed Rate Mortgage

Adjustable Rate Mortgage

Second Mortgage

Interest Only Mortgage

Reverse mortgage

Balloon Mortgage

Option ARM

Hybrid ARM

How Mortgages Work

Loan Program Comparisons