Home Reverse Mortgage Explained

You are a senior citizen and you have owned your home for more than 40 years. Time after time, you have seen some celebrity appear on your television screen telling you about the many advantages of taking out a reverse mortgage. 

They make the reverse mortgage sound so appealing, but you remain cautious because of advice showered upon you by friends and relatives who, in most cases, don’t know what they are talking about.

“Why, the government will own your home,” some will warn you.

“And you’ll be making mortgage payments the rest of your life,” others say.

“And once you take out a reverse mortgage,” some claim, “you’ll never be allowed to sell your home.”

While friends and relatives mean well, these statements are all myths.

It is true that a lot of negativity surrounds the reverse mortgage. Unfortunately, the reverse mortgage is misunderstood by many seniors who don’t fully know what makes the reverse mortgage tick.

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Let’s look at some of the facts:

A reverse mortgage is a loan insured by the federal government. It is seen as a benefit for homeowners who are 62 and older and who have full title to their home, or for those seniors who have built up a sizable amount of equity in their property.

How much equity a person has accumulated in a home over the years is what determines how much they qualify to receive when and if they decide to take out a reverse mortgage loan. When the homeowner applies for the loan and is approved, the home is converted into a source of income for the homeowner.

A reverse mortgage, then, is simply the act of the homeowner converting equity into income. As long as the homeowner stays in the house, the loan will not have to be repaid. It is repaid when either the owner moves from the house or dies. 

Seniors should understand that reverse mortgages were designed to be beneficial to them. They were not meant as a means of adding to a greedy banker or lender’s wealth. Neither were they created to shovel more money into the government’s treasury.

There are some pros and cons concerning reverse mortgages. Here are the pros:

 • Reverse mortgage funds can be distributed any way the homeowner desires: lump sum payment, via credit line or by receiving a payment each month.

 • Seniors keep the title to their home. They can remain in their home as long as they wish. 

 • Homeowners no longer need to make monthly mortgage payments. This is a great benefit for those seniors on a fixed income.

 • Out-of-pocket outlays, including closing costs, are financed as part of the loan, keeping expenses low. 

 • Homeowners can become free of all debt by using the new income generated by the reverse mortgage loan to pay off all creditors.

The cons of taking out a home mortgage are:

 • Value of the loan goes up over time as both principal and interest pile up.

 • Reverse mortgage fees are normally higher, even though the fees can be included in the loan. 

 • The greater amount of money is paid to older property owners and the higher valued homes.

 • The value of a person’s estate is lowered by a reverse mortgage loan.

 • The home can be foreclosed under certain conditions. 

 • The loan is due once a person moves out of their home. 

The person who is seriously thinking about taking out a reverse mortgage loan is required to meet with a government-approved counselor. It is a critical decision in a senior citizen’s life and all options should be analyzed thoroughly.