Reverse Mortgages - An Alternative Income Source For Seniors

REVERSE MORTGAGES

An Alternative Income Source For Seniors

Reverse mortgages are an option more and more homeowners, who are seniors, are considering. A reverse mortgage, which pays elderly homeowners monthly payments while allowing them to remain in their home the rest of their lives, can be a convenient way to supplement retirement income.

The best way to explain a “reverse mortgage” is to compare it to a traditional mortgage. With a “regular” mortgage, the borrower makes monthly payments to a bank or mortgage company. But in a “reverse” mortgage, the borrower receives money from the lender and generally don’t have to pay it back for as long as he or she lives in the home. The loan amount comes due and must be repaid when the homeowner dies, sells the home or no longer lives in the home as his principal residence.

Reverse mortgages can be a convenient way for seniors to pay property taxes, health care expenses, fund their grandchildren’s college education, donate to charity or just stay in their home and prevent foreclosure. Some seniors choose a reverse mortgage so they can travel or make purchases they can enjoy in their twilight years.

However, it’s important to remember that once a “reverse mortgage” is transacted, the owner of the home won’t be able to leave the house to their children or other heirs. After the death of the owner, the house will belong to the bank that holds the mortgage. The payments the homeowner received during his lifetime was the equity he had in the house, so the home can’t be part of any inheritance he leaves.

Reverse mortgages have become a popular option in recent years. The number of people taking out reverse mortgages has soared over the last five years, climbing from a loan volume of fewer than 6,000 loans annually prior to fiscal year 2,000 to more than 48,000 just in 2005, according to the U.S. Department of Housing and Urban Development or HUD.

It is fairly easy to qualify for a reverse mortgage. Criteria for most reverse mortgages include: the borrower must be at least 62; must live in the house to be mortgaged; the home is a single family home, two to four unit building or condominium; and the borrower should have significant equity in the home or better yet, have it completely paid off.

The proceeds of the reverse mortgage are generally tax free. That’s because the IRS doesn’t consider loan advances to be income, according to the American Bar Association’s pamphlet “Reverse Mortgages: A Lawyer’s Guide.”

To help you decide whether a reverse mortgage could be for you, visit http://www.reversemortgage.org or http://www.hud.gov.