The reverse mortgage loans claims only 1% of all mortgages, though it has gained popularity over the recent years. It is federally insured since the late 1980s where senior homeowners of paid-off homes can borrow the equity of their homes in the form of a monthly payment, line of credit or a lump sum. The loan is repaid when the homeowner moves out permanently, when the home is sold, or when he or she dies.
In earlier years of existence, the reverse mortgage was considered the last hope of a senior homeowner to save him from foreclosure, medical expenses, or keep the home from bad condition. More recently, however, they have been finding ways to use home equity to make their golden years more enjoyable.
For the last five years, the large growth of the housing market has left thousands of senior homeowners with huge amounts of home equity. Californians who have purchased homes in the early 1960s at modest prices are now retiring; many of them have home equity in the mid-six figures. Having such equity, they are now using this equity to purchase recreational vehicles, boats, luxury vacations and even second homes. The reverse mortgage loans allow them to purchase for a vacation home, even if they still have their primary residence. Once they die, the house will be sold to pay back the loan, and the second home will be part of their estate.
The lending industry cautions the seniors aged 62 and beyond whenever they plan to avail reverse mortgage loans, as this can be a win-win situation. They have their primary homes as their main asset when borrowing for such privilege. Anything can happen to them and will need adequate sum of money to pay for their needs. To really know if the reverse mortgage loans suit their needs, they may need to ask their adult children, a lawyer or financial advisor for advice. If they don’t agree, the reverse mortgage will not suit their needs after all.
Reverse mortgage has its drawbacks especially if the home equity doesn’t suit the needs of the retirees. However, if it does, the seniors can enjoy their retirement to the max and even purchase assets which can be helpful to their needs. As of this time, interest rates for this type of mortgage is very low.