Retirement Planning: Reverse Mortgage
November 14, 2007 by Miranda Marquit
Filed under Finance
One of the more interesting retirement planning options is the reverse mortgage. With the importance of passing a home down from generation to generation diminishing, fewer retirees worry much about the equity in their homes. And this is creating a drive for a popular product known as the reverse mortgage.
Reverse mortgage
The reverse mortgage is kind of what it sounds like. You structure a home equity loan so that the bank makes mortgage payments to you. The money still has to be paid back, but it doesn’t happen until the home is sold. And the payback (interest included) is made with the proceeds from the sale of the home.
Formerly, you had to be at least 62 to take advantage of the reverse mortgage. Now, however, at least one company is offering a reverse mortgage to 60-year-olds. And I have a sneaking suspicion that if more and more people want to retire early with the equity in their home to help, that lenders might even go lower.
These schemes drive me nuts.
Reverse mortgages have come a long way. They used to be flat out frauds. Lenders were literally stealing from seniors. Eventually, the government got wise to this and actually started regulating them…
As a lawyer who works with a lot of older people, the stories that I have witnessed would make you cringe. The “fine print” in many of these contracts allowed lenders to seize homes after a few payments. Ridiculous.
With the protections now, a reverse mortgage can be a good retirement planning tool. But you still have to pay attention…and you can’t forget that there’s always interest!
I agree. I’ve been there.
I agree that you have to be very cautious when doing a reverse mortgage. Lenders can be very sneaky and since this is your home and equity, you would also have to understand that nothing is full proof in the real estat market. You home may not be the value that you suspect it will be in the future.
That’s the beauty of most reverse mortgage loans. The bank only gets what the home sells for at the end. If the bank lent you the money, and the home goes down in value, regulations state that the bank can’t come after more than what the home actually sells for. It’s turned into something very viable.
Like all financial instruments you need to pay attention. There are a lot of people out there that are more than happy to take advantage of you. And like most things in life. There are no one size fits all when it comes to financial considerations. Reverse mortgages can be a godsend to some and the worst move possible for someone else.
Acc to a press release from the OCCs office, 90 % of all reverse mortgages are insured by the Federal Housing Administration and closer federal oversight may be necessary to protect the FHA as well as individual homeowners.
Exactly! It is important to remember how personal finances are, and that there is no one way to do it for everyone.