Are Reverse Mortgages Good for Your Finances? | Home

By BarryWaxller
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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.

Most people are familiar with a forward mortgage. You borrow money from a lender to pay for a home. You then pay back the loan on a schedule over a number of years. The reverse mortgage is similar to this, but the money is going the other way.

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!

Show me the money. That was the refrain of a famous movie with Tom Cruise. With reverse mortgages, you can get it in one of two ways. The first is as a lump sum payment. The second is in the form of monthly payments.

The good news is you need not pay back the money the lender is paying you. Instead, the lender will recover the money when the home is eventually sold. The bad news is you are limited to selling only fifty percent of the equity you have in your home.

With the massive amount of advertising for reverse mortgages available out there, you might think there are no negatives to the loan. In truth, there are more than a few and you really need to take them into account. Most reverse mortgages are not good deals.

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 second problem is the loan is expensive. You can spend tens of thousands of dollars getting into the loan. The interest rate on the amount you owe is also higher than forward mortgages, often two to three points higher.

Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.

About the Author

Barry Waxler is a financial advisor with UFCAmerica.com.

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