In the past year or so, the cost for reverse mortgages has decreased. Previously, this type of mortgage was fairly expensive to obtain, so it was questionable as to whether it was economically beneficial to obtain one.
The reverse mortgage is a relatively straight-forward transaction in which a senior may wish to withdraw funds from the equity in his or her home without having to repay the money back to the bank.
A homeowner who is a least 62 years of age can use a reverse mortgage to access the equity in his home. As opposed to a traditional mortgage where payments have to be repaid, the reverse mortgage allows the homeowner to receive the funds in their choice of a lump sum payment, monthly payments, or to withdraw the funds as needed. Interest accrues on the unpaid balance only as funds are withdrawn. As the debt increases, the home equity does decrease, but the payments still do not have to be paid back, usually until the homeowner is deceased or moves from the home. If the home is sold, the lender is repaid the principal and all accumulated interest payments, and if there is any equity left, then the homeowner or their estate would receive those funds at the time of sale.
One of the largest problems in the past was the expense of obtaining a home equity loan, as fees could have totaled up to 5% of the value of the home. Lately, the costs have been reduced, and this has allowed more homeowners to consider tapping the equity in their home. Reverse mortgages can be obtained from both large and small banks, however many of the smaller banks are processing reverse mortgages and then selling them off to the larger providers.
If you are considering using a reverse mortgage, you should consult with an elder law attorney to be sure that the equity in your home is protected from long-term care expenses. Often, a reverse mortgage may be a wonderful opportunity to access equity so that you may remain home as opposed to moving to an alternative living facility. However, it is important to consider the additional consequences for long-term care planning and possibly income taxes when putting together a plan for the future. Nevertheless, this is a very affordable option for developing a plan if you wish to remain in your home.
Hyman G. Darling, Esq.