Reverse Mortgage

By: Tsu-Han (Ina) Chang

Reverse mortgage is one type of mortgage/home loan that allows the homeowner to liquidate a part of their home into cash. The homeowner can choose to receive the cash payments in several ways:

1.Tenure -the homeowner will receive fixed monthly payments for the rest of their life
2.Term -the homeowner will receive fixed monthly payments for a fixed period of time
3.Line of Credit -The homeowner can choose to withdraw cash in any increment and at anytime as long as there are sufficient funds in the “account.”
4.Modified Tenure -A mix between line of credit and tenure, for as long as the homeowner remains in the home
5.Modified Term -A mix between line of credit and term

So what does this mean? This means that for anyone homeowner over the age of 62 that own their entire home will be eligible to apply for a reverse mortgage. However, in the case that the homeowner does not own 100% of their home, they will still be able to qualify for a reverse mortgage, so long as they use the cash received from the mortgage to pay off the rest of their debt obligation.

What are some of the disadvantages to a reverse mortgage? Other than the fact that the borrower must be at least 62 years old, the homeowner will have to a pay a large administrative fees and closing costs, sometimes the fees can be twice as much as that paid for an average mortgage. Furthermore, the homeowner is still in charge of paying taxes, property insurance, maintenance fees, and any other expenses that are associated with the property. Therefore, it is important to evaluate whether getting a reverse mortgage will be a cost effective option.

References:
http://en.wikipedia.org/wiki/Reverse_mortgage
http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
http://www.bankrate.com/brm/news/financial_literacy/borrowing_money/reverse_mortgages_work_sheet_a1.asp