Reverse mortgages, available to homeowners age 62 and older, are more appealing to younger borrowers than they were a decade ago, according to a study by MetLife Mature Market Institute.
This type of mortgage allows homeowners to borrow against their home equity and receive cash without any payments on the loan being due until the borrower dies, moves away or sells the home. Homeowners are still responsible for insurance and taxes, but the loans were designed to give them extra funds they may need to remain at home in their twilight years.
Financial planners often caution against obtaining a reverse mortgage because the closing fees are high and homeowners are giving up the equity in their home. Typically it's considered a last-resort tactic, since the original mortgage (if there still is one) must be paid off with the proceeds, leaving less cash for the homeowner and no future equity to use toward expenses later.
But the MetLife study shows that in 2010, 15 percent more homeowners between the ages of 62 and 64 were considering a reverse mortgage, compared with 1999. The study doesn't specify why younger homeowners are looking at these loans, but during reverse mortgage counseling, which is required for potential borrowers, 67 percent of those interested report still having a first mortgage to be paid off and 27 percent say they carry additional debt.
If you're considering a reverse mortgage, which can be paid out in a lump sum, monthly payments or set up as a line of credit, make sure to shop around and understand all of the fees and terms of the contract. Upfront cash may sound like a good idea, but there may be other ways to obtain help that are cheaper, including refinancing your mortgage for lower payments or taking out a traditional home equity loan or line of credit.
If a reverse mortgage is still the best answer, waiting until you're older to obtain one could mean you'll have more equity in your home by then, a smaller first mortgage to pay off and fewer years to collect, all factors that would result in higher payments to you.
Are you considering a reverse mortgage as soon as you are eligible at age 62?
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