Credit Loan > Mortgage Loans > Mortgage Loans -- Is A Reverse Mortgage Right For You?

Reverse Mortgage Loans

With interest rates at historic lows and the economy at issue, everyone is talking about refinancing existing mortgage loans to lower interest rates. Ideally this move will lower monthly payments, free up money for other bills and give the homeowner a breath of relief in difficult times. Unfortunately, any number of factors can arise that mean that refinancing is not a viable option. Fortunately for many people the buck does not stop with refinancing. If modification of the current mortgage loan will not work, there are other financing options. A reverse mortgage can be one of these.

A reverse mortgage is a special type of home loan that allows the current homeowner to convert a portion of the existing equity in the home to cash. This will of course depend on the property’s appraised value among other factors, but can be well worth investigating. The advantage of a reverse mortgage over a home equity loan is that the transferred money does not require repayment until the borrower or borrowers no longer uses the home as their principal residence. This is why it is a favorite of seniors. When the house is sold due a move to a smaller dwelling, or by their heirs in the event of death, the equity can be paid back out of the sale price.

There are a variety of reverse mortgage financing options out there. For those 62 and older who meet certain other requirements -- e.g. owning the home outright, or with a very low mortgage balance -- the FHA offers Home Equity Conversion Mortgages (HECMs). These loans provide the borrowers with flexibility if their circumstances change, as well as a range of options regarding how the equity is paid out.

This is useful as the borrower can regulate how much equity they take out of the home and for how long a period. For example, the homeowner can receive the money as a line of credit, a certain amount every month, or for a fixed period only, depending on their estimated needs.

One of the risks extant in a reverse mortgage is using up the entire equity in a home and then winding up with debt at a time that it cannot be paid back. However, careful financial planning, including consulting with a lawyer and other trusted advisors can avoid that pitfall and make the reverse mortgage a way to maintain independence and financial security.