Tuesday, January 15, 2008

What is a Reverse Mortgage?

More and more people are becoming curious about reverse mortgages, and I am seeing an increase in coverage about them. I even see banks hanging big banners promoting their reverse mortgages to lure in new customers. But what are they, and are they right for you?

If you are 62 or older and your home is your primary residence, then you can get a reverse mortgage loan based on the value of your home. The best part is that there are no monthly payments on the loan as long as you live there. Payment isn't due until you leave the home, either due to death, selling the home, or moving to a new primary residence. That is what makes reverse mortgages a great income option for seniors. One exception to these qualifications is the type of building you live in. Single family homes nearly always qualify, but condos and small multi-unit buildings are not accepted by all lenders.

Another great feature is that you will never owe more than the home's value at the time of repayment. If the value of your home has declined since the loan was started, the bank has assumed that risk and must absorb the loss.

Now, if you have a reverse mortgage, you are still responsible for taxes, insurance, repairs and other homeowner priorities. Also, be aware of the interest and fees associated with getting a reverse mortgage, including application fees, origination fees, closing costs, monthly service fees and more. The good news is that those fees can be paid for by the loan amount, and that reverse mortgages from local and state government lenders have the best rates and lowest fees.

I wanted to write this post because there are misconceptions about reverse mortgages out there, so I wanted to present the basics. Rest assured that you cannot lose your home due to a reverse mortgage. The federal government defines reverse mortgages as "non-recourse loans" and the lender cannot foreclose. In fact, they never even have the deed or title to the home.

Reverse mortgages have many complicated aspects, but they can be a simple solution for many homeowners looking to enjoy the equity they have built up in their homes. For more information, visit AARP's overview or Reverse Mortgages for Dummies. And, you can always give me a call. I'm always happy to help. I can be reached at 510-547-5970 x57 or MSmartt@jps.net.

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