A reverse mortgage can be a powerful financial tool, but whether or not to take such a mortgage out requires careful consideration. Over the past several years the housing market has grown considerably, and that growth in equity has been followed by increasing numbers of homeowners seeking reverse mortgages. Let's say, for example, that you purchased your home 40 to 45 years ago for about $20,000. That home today, depending on the property values of your location, would probably be selling today for at least $150,000 to $160,000. Even though the value we have used is likely a minimum figure, you can see that the equity increase is dramatic. Let's also say that because you have now retired that you desire to move elsewhere or perhaps simply buy another home. In that case, you might be a candidate for a reverse mortgage. Here is why. The equity you have built up on the first home--now paid for--can be used to finance a second home. Reverse mortgages have been federally insured since the late 1980's and would allow you--now mortgage free--to borrow against the equity of your first home. It is true that reverse mortgages have been, and to some extent still are, viewed as desperate measure taken to avoid some dire circumstance such as foreclosure or medical expenses. However, many who are retired are more and more seeing the reverse mortgage as a means of adding income to their later years. When you buy a second home with a reverse mortgage you essentially buy the new home outright with cash. You may continue to live in either residence, but when you die, your first home is usually sold to pay for the second. The second home then remains as part of your estate. In order to take out a reverse mortgage, you must be at 63 or older, and you may receive the mortgage in one payment, in regular payments, or even a line of credit. Now, this may appear all good, but as we mentioned, a reverse loan should only be taken after careful consideration. Borrowing against your equity, if done hastily without proper thought, can quickly turn against you. One of the primary disadvantages of a reverse mortgage is that you will not have the money available should a severe and unexpected need arise, such long-term medical care. Nevertheless, at present, the reverse mortgage is allowing many of the retired population to enhance their later years with the "injection" of income that such a mortgage makes possible. If you determine that a reverse mortgage is right for you and won't create unnecessary risk or hardship, then this may be a way for you to enjoy a retirement that otherwise might not have been possible. |
