The Wall Street Journal recently printed a piece on reverse mortgages. Its writer relayed the story of his ailing grandmother, diagnosed with bladder cancer and unable to afford the expenses involved in her care. With neither Medicare nor Medicaid an option she was left, like many Americans, in a real and dire quandry.
We all know that our homes are supposed to be our greatest asset, so there had to be a way that someone in such a situation could use their home to stave off what could easily become an unbearable liability. And, in fact, for the above-mentioned grandmother, her home turned out to be her saving grace. She got a reverse mortgage.
In essence, a reverse mortgage is exactly what it sounds like: instead of the homeowner making monthly payments to the bank, the bank instead makes payments to the homeowner – whether monthly, in a lump sum, or as a line of credit. Why would banks do such a thing? Because the loan is paid off, with interest, when one of the following conditions is met:
- the house is sold
- the borrower permanently moves out of the home
- the borrower passes away
While this option eliminates the possibility that the homeowner can leave her home to her heirs, it also means that she can acquire the funds she needs to sustain herself through the trials and tribulations of old age. And her heirs won’t get saddled with sudden payments on a home they can’t afford.
The funds obtained through a reverse mortgage can be used for anything the borrower wants – retirement costs, medical care, a child or grandchild’s education, travel and recreation, etc. The current mortgage on the home does not need to be paid off in order for a person to apply for a reverse mortgage. And there are no credit, income, or loan repayment qualifications.
There’s a trade-off with a reverse mortgage: an elderly person or couple (over the age of 62) can give themselves a needed new and regular income, but to do so must accept the slow draining of equity built up in the home. It’s therefore wise to discuss the pros and cons of a reverse mortgage with a financial counselor before deciding to apply for one.
To learn more about reverse mortgages,
click here.
To begin the process of applying for a reverse mortgage
click here.