The Bank Pays You With Reverse Mortgages
It is a long row to hoe when you first take out a traditional mortgage, with most people committed to making monthly payments for thirty years as they slowly build equity. Once you have made that last payment all of the equity is finally yours, and that is certainly a good feeling indeed.
At that point, you have an option available to you called a reverse mortgage. If you are at least 62 years old and you either own your home outright or have a significant amount of equity in it you can turn the tables and have the bank make payments to you. These payments can be received monthly or in some other regular increment, in a lump sum, or on an as-needed basis in the same manner you would use a home equity line of credit. In return, the lender acquires equity in your home.
Since you are receiving and not making payments your income and credit scores are not relevant, and you can’t be foreclosed upon. You are required to keep your property taxes and insurance current and maintain the home adequately, and you must also live in it as your primary place or residence. Should you fail to meet any of these requirements the loan could be called in, but otherwise you simply live in the house as long as you want to with no risks.
When you die or if you choose to move, the reverse mortgage loan becomes due and payable. You or your heirs could then sell the house and pay off the loan balance, though you can pay off the loan using some other source of funding and keep the house if that’s what you would prefer to do. Of course, if the house sells for more that you owe, you keep that remainder; but if it sells for less, you are not responsible for the difference.
These type of mortgages are not for everybody, and those considering them should be cautious. But for some people, the ability to tap into the equity of their home is the difference between their ability to maintain a decent standard of living, or having the live in poverty or ask for help from their children. For those individuals, reverse mortgages should be considered as one alternative to maintaining financial independence.
