Reverse Mortgage

Reverse mortgage- How does it help baby boomers?

Reverse mortgage is a widely availed "retirement tool" that majority of the baby boomers opt for. And this is one option that seniors should avail if –

• They can afford it
• It makes sense
• They are eligible for the same

There are several ways in which an older American can derive benefit from reverse mortgage.

What happens when you take out a reverse mortgage?

Reverse mortgage is different from a traditional or a conventional mortgage. The major difference is how equity works.

Conventional mortgage is "decreasing debt and increasing equity". But reverse mortgage is “decreasing equity and increasing debt”. You will be eligible for this mortgage provided you are –

• 62 years or more
• You are the owner of the house in which you live
• There is enough equity in your property

Salient features and its benefits

• When you take out a reverse mortgage, you will receive payments from the mortgage lender and it is not the other way around which is the rule in case of a conventional mortgage.
• You will retain homeownership.
• Since you retain homeownership, you will be required to pay the taxes.
• You don't have to make monthly payments on the mortgage till the time you live.
• The proceeds don't attract tax as it is a loan advance and not income.
• You can use the amount you receive to meet various financial obligations. It may be funding a vacation, meeting medical expenses, paying for property tax etc.
• Your income or employment details are not taken into account.
• You will receive payments from the lender in various forms. It can be in the form of a lump sum payment, line of credit, monthly payment or a combination of the aforesaid options.

What are the drawbacks of reverse mortgage?

Just as this type of mortgage has benefits, there are few drawbacks too. Some of them are as follows –

• The equity in your property diminishes and your heirs inherit less
• The costs involved are high
• Prior to availing reverse mortgage, it is better to find out how it affects your eligibility for Medicaid as well as other state aid programs.

However, if you find that the advantages are more than the drawbacks and it makes sense in taking out reverse mortgage, you should go ahead with it.