Reverse Mortgages

Reverse Mortgages

By: Martin M. Shenkman, CPA, MBA, JD

Reverse Annuity Mortgages are a growing new trend in residential financing, especially among senior citizens. This articles aims to uncover just what a Reverse Annuity Mortgage is, and whether or not it's right for you.

A regular mortgage is when you receive a loan to buy a house, and are obligated to pay back the principal of the loan, plus any interest that has accrued over time, on a monthly basis. A Reverse Mortgage however, works in the opposite way. If you take out a reverse mortgage, lenders are holding out money to you based solely on the equity in your home. However you are not required to make monthly payments. Instead, the loan ends either when the homeowner dies, sells the house, or moves into an assisted living facility. At that point the money gained from the sale of the house is used to pay off the loan and any interest, and the remainder from the sale goes to the estate.

There are several different types of reverse mortgages that you can take out. Either you can receive a lump sum payment, monthly payments, or you can request funds when necessary, similar to a home equity line of credit. You can also choose to format the loan either as a tenure plan, in which you receive payments as long as you remain in the home, or on a monthly plan for a specified amount of time. Either way, at the loans end you cannot be indebted to the lenders more that the estimated value of the home. Depending on your situation one may provide you with more money than the other.

A typical example of someone who would take out a reverse mortgage, is an elderly person or couple who is living in a home that they have resided in for a long time. Their Social Security checks and their savings are not enough to maintain their residence for a significant period of time, but they do not want to vacate the house. A reverse mortgage is an ideal solution for them, so that they will receive either a lump sum or monthly stipends for the rest of their residence in the house.

Before you make this big decision you need to ascertain if this is the right move for you? Talk to your kids, talk to your family. Do you want to stay in your house? Do you see yourself ever selling the house? Do any of your kids want to possibly move in to the house at any point? Can your current income cover your living costs? Would you ever consider moving into a assisted living facility? These are all questions you need to ask yourself and your loved ones before making this decision. It is also important to consult with a licensed CPA or a Financial Planner before making any decisions. While there are many things to consider, a reverse mortgage could be the perfect choice for you to remain in your home and reduce your financial stress.

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