Definition
A reverse mortgage, also known as a reverse annuity mortgage is a special loan product that allows elderly homeowners to receive periodic payments to access equity in the home.
Analysis
Reverse mortgages are becoming more popular among senior citizens that are house rich but cash poor. They allow for periodic payments that may be used for home maintenance, living expenses or even medical bills. Some seniors may use the equity in their home to improve their quality of living or to take vacations.
Home Equity Conversion Mortgages (HECMs) are the most common type of reverse mortgage. These loans are guaranteed by the Federal Housing Administration.
Some lenders have additional reverse mortgage products that may have more relaxed requirements. For example, while HECMs require that all homeowners be age 62 or older, some other reverse mortgage products may only require a minimum age of 60.
A reverse mortgage may be used to pay guaranteed payments to the owners for life, or it may make higher payments for a specified number of years. Some reverse mortgages are geared to pay until the first homeowner dies, while others specify that payments will be made until both are deceased.
Reverse mortgages carry substantial cost and can reduce an inheritance. Therefore, any homeowner considering a reverse mortgage should meet with a reverse mortgage counselor to identify the pros and cons of reverse mortgages. Their own family needs should be identified in addition to the immediate and future needs of the homeowners.
