Reverse mortgages made simple: what they are, what they affect, and whether you should invest
Senior citizens are offered many benefits by the government as a reward for their years of service to their communities. They are entitled to health coverage, Social Security payments, and monthly pension payments. Recently, many seniors have also been encouraged to invest in reverse mortgages. For active seniors, the chance to be paid for owning their own home sounds like an excellent investment opportunity. But is it really?
WHAT A REVERSE MORTGAGE IS
A reverse mortgage is a plan in which the lender pays the homeowner a certain amount each month that the owner occupies the property. This type of mortgage is available to those over the age of 62; the amount paid depends upon the person’s equity, age, and the value of the home.
DOES THE REVERSE MORTGAGE HAVE TO BE PAID BACK?
The reverse mortgage is not paid back until the homeowner permanently leaves the home. If the homeowner dies in the home, the mortgage must be paid back by heirs. Typically, this is done by selling the home. The heirs may then keep any proceeds that go beyond the amount owed. If the senior citizen should move, however, the reverse mortgage immediately becomes payable.
DOES A REVERSE MORTGAGE AFFECT OTHER PROGRAMS?
No. The reverse mortgage has nothing to do with Medicare, Social Security, or pension programs. This makes it an attractive option for seniors who need extra money and prefer to live in their own homes. The money paid through the reverse mortgage is an extra source of income for these seniors.
FACTORS TO CONSIDER
Since a reverse mortgage does not affect government programs seniors are entitled to, it can be tempting to purchase one. However, seniors should consider several things before making this decision. First, the senior needs to evaluate whether it is realistic to expect to live in this home for the rest of his or her life. Seniors may eventually have to move into assisted living or other care facilities due to failing health; in addition, seniors may someday want to be closer to grandchildren who are not yet born. In either of these cases, the loan will have to be paid back. Finally, seniors should consider the possibility that their heirs will have to sell the home after their death. Many homes are considered family heirlooms, in which case the reverse mortgage is not appropriate.
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