Be Prepared for a Reverse Mortgage

Retirement funds are dwindling.  Health care costs are rising.  Pension plans are being altered.  With all of the economic woes befalling retirees, it's no wonder that the reverse mortgage has become an increasingly popular tool.  Its guarantee of cash flow, with no payments required, makes it a very popular mortgage refinance option.

In the heyday of home equity lending, a typical mortgage refinance involved either a cash-out mortgage refinance or a home equity loan.  Times have changed, particularly for older Americans.  As 401(k) balances and pensions plans have decreased in size, people nearing retirement are considering other financial options.  One popular choice is the reverse mortgage, which includes the federal government's Home Equity Conversion Mortgage program.

Don't dip into the nest-egg

The recent implosion of the banking industry and the shakiness of the economy in general has left plenty of Americans feeling jittery and strapped for cash.  The reverse mortgage, which is a loan secured by the value of one's home, requires no repayment of the loan until the borrower vacates the property.  In essence, you're able to tap your home's equity without having to make a payment.  The lender recovers the money when the home is sold.

It's a great option for older borrowers who don't want to tap into their Social Security funds too early.  It also allows people to avoid making taxable withdrawals from their IRA and 401(k) accounts.

Advantages start with staying home

The biggest benefit to a reverse mortgage is that homeowners can continue to enjoy their current lifestyles.  Once borrowers have secured a reverse mortgage, they can remain in their homes.  The amount owed to the bank will be paid when the property is sold.  All interest and fees will accumulate until that time, with no payments required.  If money remains after the sale is made and the lender has been paid in full, the balance is returned to the property owner.

The borrower can receive payments in a lump sum, or a stream of regular payments to supplement a monthly income.  Many programs allow homeowners to change payment options as often as they wish.

Qualifications for a reverse mortgage

The reverse mortgage is available only to people 62 and older, and homeowners must have equity in their home to qualify.  Borrowers should consult with their family, financial planner, and lawyer during the lending process to ensure that the mortgage is the right fit for their particular situation.

Many different lending institutions offer the reverse mortgage, including those approved by the U.S. Department of Housing and Urban Development (HUD).  HUD-approved lenders provide reverse mortgages under the Home Equity Conversion Mortgage program (HECM).  Loans in the HECM program are insured by Federal Housing Administration insurance.

As the times become more uncertain, the reverse mortgage is becoming an increasingly viable option for people 62 years of age and older.  Its easy liquidity and no minimum payments allow people to enjoy their lifestyle today without tapping into retirement funds set aside for tomorrow.