The Truth About A Reverse Mortgage

Although the reverse mortgage has been around for twenty years, the average homeowner knows very little about this retirement tool.

Simply put, this is a loan against the equity in your home. It is only available to homeowners age 62 and older. Contrary to some myths about this loan, it does not involve the homeowner giving up title of the property to anyone (provided of course all real estate property taxes and insurance payments are made).

If you're considering this loan currently, it is probably due to one of two reasons:

1. you got to my website a little late in your retirement planning efforts, or
2. your financial advisor has told you that it is the best option for your particular circumstances in your estate planning efforts.

The reason you may have received such advice might be because this type of home equity mortgage is disbursed tax-free. And, since you're not limited to what you can do with the funds, you can likely turn around and purchase certain whole life policies, which in effect, could reduce the taxable portion of your estate while increasing its non-taxable portion .

If you have no other sources of revenue, the proceeds also can be used to purchase an annuity in order to provide a lifetime stream of income.

However, don't be too in a hurry to sign up for a reverse mortgage until you have all the facts and know for certain that it is the best option for your particular financial goal.

As this type of home equity mortgage picks up in popularity, you can expect to see more reverse mortgage lenders begin to push this product via your local community banks. Be careful.

The small community bank down the street (you know the one...where you've been banking for years, and where everyone knows you by name), may have its own best interest at heart when they start approaching you about a reverse mortgage offer.

Here's why: the banks know that the proceeds you receive from the loan will put a significant lump sum of cash in your hands. Well, guess what they're hoping you'll do with it?

That's right. Deposit the money with them so they can in turn lend it at a higher rate (while perhaps paying you a ridiculous interest rate) so they can make money on your money. This will become a great opportunity for banks to win additional deposits.

And, as far as the mortgage broker who gladly takes your application for a regular or even a jumbo reverse mortgage without understanding your particular circumstances, he or she is most likely looking to fill the void left by the big drop off in the home purchase and refinance business. So be careful.

If your goal is to increase your retirement income or create cash reserves, this loan is not necessarily the silver bullet. There may be other ways to accomplish this goal.

Look, when squeezed by financial pressure, it is normal to take the path of least resistance. Here's what I mean by that.

Since this is one of the easiest loans to obtain, many may be quick to embrace the loan to relieve some of the financial pressure that can be created by a child's college education, or the rising healthcare cost of an elderly.

Before you get to a situation where your only alternative for cash is this type of loan, you may want to give serious consideration to alternative programs involving home equity separation as early as possible.

The ease of obtaining the loan should not overshadow the disadvantages of a reverse mortgage (however few there may be). Contrary to a 'forward' mortgage (the kind you use to buy a home for example), your debt increases and your home equity decreases. So as your debt gets larger (because the lender has been sending you cash instead of the other way around), you may find that there's no equity left at the end of the loan.

With that said, please be sure to understand the extensive information that's available on this website and other independent information websites such as AARP reverse mortgage information. In so doing, your decision will be based on all the available facts and not just the positive aspects of the loan. Find out if a reverse mortgage is the right option for you.

Contact me today!