Reverse mortgages can be a lifeline for senior citizens
As the US population ages, many seniors are facing more uncertain times and the prospect of their savings running out before they die.
Enter the reverse mortgage. A reverse mortgage is a loan offered by banks and mortgage firms exclusively to seniors 62 years old and up who own their own homes. The loan is against the equity they have in their homes and is paid to the applicant as one lump sum or multiple payments over time.
The idea is that when the homeowner passes on, sells the home, or leaves the property for more than 12 consecutive months, the lender assumes ownership of the property. In reality though, there may be other outcomes, such as:
- The heirs of the estate or the borrower can refinance the home and keep it
- Heirs or borrower can sell the home and cash out the equity
- Heirs or borrower can turn the home over to the lender.
If the property is turned over to the lender the borrower or the heirs have no more claim to the property or equity in the property.
The benefits of a reverse mortgage are clear. Without it, many seniors would have no means of income for their remaining years and would end their years impoverished and likely homeless.
Reverse mortgages provide ready cash while enabling seniors to remain in their homes until they pass on.
One downside of the reverse mortgage is that, while there is government oversight via the Federal Housing Authority (FHA), these loans are typically expensive. In addition, the property is no longer passed on to children and/or relatives.
After years of rapid growth, the number of reverse mortgages volume fell 35% from 2009 during 2010, to 72,748 units. However, keep in mind that in 2001, 7,781 loans were originated.
The problem now for many seniors is that their properties are now underwater, preventing them from releasing equity in the form of a reverse mortgage.
A home equity line of credit (HELOC) or a mortgage are alternatives to a reverse mortgage, but the problem is that retired senior are on a fixed income and not working This makes such loans impossible for many seniors and increases the attractiveness of reverse mortgages.
Have you taken a reverse mortgage? What are your thoughts?
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