What Boomers Need to Know About Reverse Mortgages

You have been making mortgage payments most of your adult life. Maybe it’s time your mortgage lender starts to pay you back.

According to the National Reverse Mortgage Lenders Association, since 1990, 906,018 seniors have accessed the equity in their homes by taking out a reverse mortgage. Although recently, the numbers seem to be on a decline. In 2009, 114,292 applications were processed, while in 2014 only 51,642 seniors applied.

The reverse mortgage is a financial product that has been available for more than 50 years, but many people are confused about what it is and how it works.

The original idea of the reverse mortgage was to give seniors (age 62 and over) the opportunity to access the equity in their homes without selling or incurring the obligation to make monthly payments to a lender.  It was expected that most reverse mortgage borrowers would receive monthly payments from the lender to help pay their living expenses and age in place.  However, recent studies have exposed worrisome trends that can put borrowers at financial risk. 

David Cutner, partner at Lamson & Cutner, P.C., attorneys for the elderly and disabled, offered the following insight about reverse mortgages for boomers:

Boomer: What is a reverse mortgage and how does it work?

Cutner:  I think that a reverse mortgage might be best understood by comparing it to a conventional mortgage. With a conventional mortgage loan, you borrow money from a lender (usually a bank or mortgage company), and you pay back the loan in monthly installments over a lengthy period of time (typically 15 or 30 years). Your property is collateral for the loan, and the bank can foreclose on it if you fail to pay back your loan. 

With a reverse mortgage, the bank or mortgage company is lending you money, but you don’t have to pay back the loan until the property is sold, you move out of your home, or you die. The home is collateral for the loan, and the loan is repaid when the home is sold. If the home is worth more than the mortgage (amount loaned plus interest), then the remaining equity will go to your estate. If the home is worth less, your estate is not liable for the debt and the lender must take the loss, although the lender may be able to obtain reimbursement from the Federal Housing Administration (“FHA”). Most reverse mortgages are government insured.

see more: http://www.foxbusiness.com/personal-finance/2015/04/17/what-boomers-need-to-know-about-reverse-mortgages/