How does a reverse mortgage work? Is it a good idea?

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Answered by Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hi anonymously,

Are they a good idea? Here is some information to help you with that.

In general, to be eligible for a reverse mortgage the youngest homeowner must be at least 62 years old and have sufficient home equity. You must also meet financial eligibility criteria as established by Department of Housing and Urban Development (HUD). You may need to set aside additional funds from loan proceeds to pay for taxes and insurance.

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that you built up over years of making mortgage payments can be paid to you. However, unlike a traditional home equity loan or second mortgage, borrowers do not have to repay the loan until they no longer use the home as their principal residence or if they fail to meet the obligations of the mortgage. You can also use it to purchase a primary residence if you are able to use cash on hand to pay the difference between the loan proceeds and the sales price plus closing costs for the property you are purchasing.

Here is a link to HUD:
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/rmtopten

Here is a link to a MoneyTips article:
http://www.moneytips.com/reverse-mortgages-101

Here is a link from MoneyTips concerning statistics:
http://www.moneytips.com/number-of-reverse-mortgages-due-tripled-in-2015

Feel free to contact us directly more more information on your specific situation. No obligation.

Always do what is in your best interest.

It's not what you make; it's what you keep that determines your lifestyle. | 05.28.16 @ 14:45
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 08:13
Answered by Barry Rabinowitz, Financial Adviser in Plantation, FL
Reverse mortgages make sense in certain situations and are not for everyone.
If you plan on staying in your home for at least the next ten years, it may make sense for you.
If you are 62 or older, it's a way to access the equity in your home, without having to sell your home. Instead of paying a mortgage you can get tax-free monthly income or a lump sum payment. The payments are a non-recourse loan, and are repayable upon your death.
If you are married, new regulations protect your spouse upon your untimely death.
After the death of both spouses, your beneficiaries can decide to pay off the loan and keep the house, or pass and the bank gets the home. As it's a non-recourse loan, the bank cannot come after anyone if the market value is below the loan balance at death. | 06.01.16 @ 12:07
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$commenter.renderDisplayableName() — {comment} | 12.09.16 @ 08:13
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