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Reverse Mortgages - What Are They?

The great American Dream is to own a home. After all, it is a great nest egg investment. When you hit your retirement years, however, how do you turn the equity in the home into money you can use? Many suggest using a reverse mortgage.

The traditional mortgage can be described simply. The lender issues you a bulk sum of money to buy a property. In exchange, you agree to pay back the sum plus interest over a lengthy period of 15 or 30 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 reverse mortgage is legally restricted to a certain class of homeowners. In fact, you have to be at least 62 years old before you can even think about applying for one. Assuming you meet this requirement, everything flips.

After years of making monthly payments to the lender on your traditional mortgage, you are going to love the reverse mortgage. Why? The lender will be 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.

If you have heirs you wish to take care of, the reverse mortgage can be a nightmare. Remember, you are selling your equity in the home. When you pass away, this often results in little being left for your heirs.

The cost of the reverse mortgage is another big issue. Simply put, the fees are outrageous in most cases. They often run up in the tens of thousands of dollars. The interest rate on the accruing debt is also going to be higher than normal loan rates.

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.