The Case For Reverse Mortgages

Nov 2nd, 2007 @ 9:12 AM by Alden Smith

In these uncertain times, with the mortgage market in such a shambles, many people are wondering about their futures.  This year, the first of the Baby Boomers reach 60 years of age.  Social Security is in jeopardy, and many feel we are in a hopeless situation.  Currently, foreclosure in the housing sector have reached almost a half million homes.  Prices of new construction continue to drop, because contractors cannot unload them to a market that is in turmoil.  Despite all this, there is a ray of sunshine that we can see.

Help For The Boomers

Many Baby Boomers worry about their future, with good cause.  The cost of health care in this country is ridiculous, and with gas prices continually rising, there is reason for concern.  Help for this can come in the form of a reverse mortgage.

What Is A Reverse Mortgage?

A reverse mortgage is a federal Housing and Urban Development (HUD) guaranteed loan.  It has no asset or income limitations on borrowers, thus making it the best vehicle for long time homeowners to fall back on in time of need.  This loan can be used to provide in home health care or fund a long-term health care policy, pay-off of existing debts, home repairs and home improvements, and any other needs you may have.  Reverse mortgages can give consumers greater flexibility in financial or tax planning, and can will enhance the liquidity of the initial investment.

How It Works

The size of reverse mortgage loans is determined by the borrower’s age, the current interest rate, and the home’s value. The amount of money that can be borrowed is limited by a Federal Housing Administration (FHA) formula for each city and county.  Fees are similar to those of a conventional mortgage.  These fees are often paid for as part of the mortgage.

How Payment Is Received

Payment can be received in a variety of ways:

* A line of credit.  You can withdraw as needed, up to the maximum principal limit.

* A lump sum.  You can take all or part of the loan at closing.

* A tenure plan.  You can withdraw payments as long as you live in your own home.

* A combination plan.  You can combine a lump sum with a line of credit.

The reverse mortgage is great for people wishing to stay in their homes after retirement.  Many long term owners have never tapped into the equity in their homes, and this shows a figure of approximately $1.9 trillion dollars.  For the person retiring who may have a lot of equity in their homes but little to fall back on in their retirement years, this is a great advantage.

In Conclusion

The downside with reverse mortgages right now is that property values have fallen considerably in the current market climate.  Careful consideration and planning is needed to decide if a reverse mortgage is the right thing for you to do.