mortgage

Reverse mortgages aid seniors going forward

Faced with rising living costs and erratic stock portfolios, seniors may consider checking out reverse mortgages as a means to shore up their personal finances.

Rather than taking out a second mortgage or home equity loan, homeowners tap into the existing equity in their home to get needed cash. The payments to the homeowner can come in the form of equal monthly payments, a line of credit or a combination of the two.

Instead of making monthly loan payments to the bank, no repayment is necessary until the home is no longer the borrower's primary residence.

To qualify for a reverse mortgage, a homeowner must be at least 62 years old, occupy the home, and have no mortgage or a low mortgage balance that can be paid off when the home is sold.

Reverse mortgages account for only a fraction of all mortgages. While a reverse mortgage might sound ideal, like anything else it has pros and cons.

The upside

On the positive side, the money from a reverse mortgage generally does not impact Social Security or Medicare benefits, and most loans do not have income requirements. The homeowner retains title to the home, and can live in a nursing home or other medical facility for up to 12 months before the loan becomes due.

The downside

Origination fees and closing costs can be quite steep, and the debt increases over time because interest is charged on the outstanding balance of the loan.

There's no getting out of the taxes, homeowners insurance, maintenance costs and other expenses for which the owner is responsible. And drawing down home equity obviously means less money to leave to your heirs when the home is sold.

You can learn more about the pros and cons of a reverse mortgage using Bankrate.

Counseling is required before obtaining a reverse mortgage, giving homeowners good insights into whether a reverse mortgage is the right choice given their financial situations.

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