February 11, 2016
Reverse Mortgage Lowdown
Athene quoted me in Is a Reverse Mortgage Right for You? It opens,
Experts weigh the pros and cons of this loan—to help you make a smart choice.
For homeowners age 62 and older who have a significant amount of equity (appraised value minus mortgage balance) in their homes, a reverse mortgage can seem like an attractive option. Simply put, a reverse mortgage allows you to convert a portion of the equity in your home into cash, without having to sell your home. But this type of loan isn’t right for everyone. Here’s help determining if a reverse mortgage is the smart choice for you.
Pros: A reverse mortgage is a loan against your home equity, which you can take as a lump sum payment, a monthly payment, or a line of credit. The loan is paid off when you no longer live in the home. “It allows a homeowner to access home equity in the present in order to supplement current income,” says David Reiss, a professor of law at Brooklyn Law School who teaches residential real estate courses.
Consider this loan if you would like to stay in your current home and
- Have lived in your home for a long time and plan to use the equity to supplement Social Security and other investment income streams
- Have other assets and are not using this as a loan of last resort
- Might not be able to access the cash you need in emergencies
Cons: These loans aren’t cheap, says Scott Withiam, housing counseling supervisor at American Consumer Credit Counseling, Inc. Plus, the industry that sells them has been under scrutiny from the Consumer Financial Protection Bureau for deceptive practices. “The reverse mortgage industry has had more than its share of shady operators who are drawn to all that equity that seniors have amassed,” says Reiss. “Homeowners considering a reverse mortgage should make sure to review the terms of the transaction with someone whose financial judgment he or she trusts.”
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