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Getting Equity Out Of Your Home for Retirement

What is the one thing you read over and over? Buy a home! The advice makes sense in this case as a home is a good long term investment. The question, however, is how do you get the money out when you need it?

If you own a home, you have been in a forward mortgage and you know how it works. You borrow money for a home and then pay it back over a set schedule, often for a full thirty years.

Reverse mortgages, around since the 1960's, have been making a comeback in recent years. As the basic population of the country ages, the question of converting equity to cash that can be used is becoming more and more of an issue.

The government and various groups have worked long and hard to eliminate bias in the country. It is somewhat ironic that the reverse mortgage contains a legal bias. Yes, you can only apply for it if you are older than 61 years of age.

The reverse mortgage works the opposite of a traditional mortage, but it can be hard to get your head around the concept. Essentially, the lender buys the equity in the home from you by making payments to you.

So, what is the deal with the payments? Well, it depends on the lender. In some situations, you can receive a lump sum payment for your equity. In others, you can get monthly payments from the lender.

The star issue paraded in the marketing for reverse mortgages is the mortgage pay back. Simply put, there is none. The lender recovers the money they have paid you when the house is subsequently sold.

Are their any downsides to the reverse mortgage? If you listing to the advertising, you would think not. Look past the marketing pieces and the reverse mortgage can quickly become a horror show.

The first problem with the reverse mortgage is your heirs. If you hope to leave them with something, you need to realize the reverse mortgage lender is going to take a large chunk of the equity in your home when you sell it or pass on.

A huge problem with the reverse mortgage is the expense. They are incredibly expensive, often costing tens of thousands of dollars to institute. The FHA has even started overseeing them to protect consumers.

At the end of the day, most financial professionals view reverse mortgages as a less than stellar option for seniors to access the equity in their homes. If you are faced with this problem, make sure to explore all options available to you with a financial consultant.