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Reverse
Mortgage (RM)
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Reverse mortgage (known as equity withdrawal in
UK) is a special type of loan available to equity-rich, older owners. Repayment is not necessary until the borrower sells the property or moves into a retirement community.
It is an agreement in which a lending company makes regular payments to a homeowner during a specific period of time. The amount of payment is determined by the amount of equity the homeowner has in the home. The homeowner is allowed to remain in the home until his/her death or until a negotiated future date. At that time, the home is sold, and/or the lender is repaid.
It is a way of converting older consumers home equity into a cash payment while retaining ownership of their property. To qualify for a reverse mortgage in the United States, you must be at least 62 and have paid off all or most of your home mortgage. |
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Advantages:
With a Reverse Mortgage, you retain full ownership and control of your home.
You may continue to receive income, and defer repayment, for as long as you live at home - no matter how long that may be.
You can never ever be forced from your home (you own it); the Reverse Mortgage does not have to be repaid until after you permanently vacate your home.
All Reverse Mortgages are non-recourse loans which means there is no personal liability to you or your Heirs - no matter what. Reverse Mortgage lenders can only look to your home's value for repayment (both Homeowner and Lender are insured against loss). |
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Disadvantages:
A reverse mortgage depends on one of your most valuable assets, your home.
In deciding whether to get a reverse mortgage, consider that in exchange for financial security, you trade in part or all of the equity in your home.
If you have other resources to draw on first or if you want to leave your heirs the full value of your home, it may not be the right solution for you.
For those who have investments, we recommends first reallocating your portfolio to produce more income. After that, if your nest egg needs some time to recover, consider getting a home equity line of credit to bridge the gap, since the cost of setting one up is significantly less than a reverse mortgage and you only need to pay it back if you tap the line.
The reverse mortgage is a type of “non-recourse” loan, meaning the amount owed can never be more than the value of the house. The only asset a lender can pursue to satisfy the loan would be the home itself, no other asset of the homeowner could be touched.
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