Chances are, you’ve seen Henry Winkler (aka Fonzie) and Fred Thompson on TV lately. Are the reverse mortgages they’re hocking snake oil, or smart moves?
First, let’s understand what a reverse mortgage is. A bank is making you a loan, and sending you the money. The loan is collateralized by your home’s equity.
There are no “payments” required on a reverse mortgage. Rather, the lender adds a monthly interest charge to the loan amount and carries the balance forward until you die or sell the house.
When you do – the loan balance including interest is repaid from the sale proceeds. If the sale proceeds are insufficient – special HUD insurance makes up the shortfall so there is no lingering debt to you or your heirs.
You own the home 100% – and you always will. Reverse mortgages are available to any homeowner over age 62 – even if you still have a regular mortgage balance.
Okay – with that background – when and why would you consider a reverse mortgage?
First, if you don’t plan to keep your home for at least 5 years – a reverse mortgage is not for you. But if you do, the proceeds can be used for anything you wish.
You might use a reverse mortgage to pay off a regular mortgage and eliminate that payment from your monthly budget. If you don’t have a regular mortgage, consider putting the reverse mortgage money into a safe instrument where it remains accessible; can provide an income; and will extinguish the reverse mortgage so your home can pass free and clear. Reply to learn more.
That equity is doing nothing for you anyway – leverage it the smart way – with a reverse mortgage.