Getting Equity Out Of Your Home For Retirement

Getting Equity Out Of Your Home For Retirement

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What is the one thing you read over and over? Buy a home! The advice makes sense in this case as a home is a good long term investment. The question, however, is how do you get the money out when you need it?

If you own a home, you have been in a forward mortgage and you know how it works. You borrow money for a home and then pay it back over a set schedule, often for a full thirty years.

Reverse mortgages, around since the 1960's, have been making a comeback in recent years. As the basic population of the country ages, the question of converting equity to cash that can be used is becoming more and more of an issue.

The reverse mortgage is legally restricted to a certain class of homeowners. In fact, you have to be at least 62 years old before you can even think about applying for one. Assuming you meet this requirement, everything flips.

The reverse mortgage works the opposite of a traditional mortage, but it can be hard to get your head around the concept. Essentially, the lender buys the equity in the home from you by making payments to you.

The nature of the payments, of course, is unique. You can have the lender make monthly payments to you much like you did to your original mortage lender. Alternatively, you can ask for a lump sum payment.

The star issue paraded in the marketing for reverse mortgages is the mortgage pay back. Simply put, there is none. The lender recovers the money they have paid you when the house is subsequently sold.

So, are there any negatives to this equity converting financial product? Oh, yes there are. Remember, marketing efforts are all about emphasizing the positive while ignoring the negatives.

Sometimes it is hard to see the forest for the trees. With the reverse mortgage, this has to do with the issue of what is left at the end of the process. Simply put, the lender is going to take a large chunk of the home, not your heirs.

The second problem is the loan is expensive. You can spend tens of thousands of dollars getting into the loan. The interest rate on the amount you owe is also higher than forward mortgages, often two to three points higher.

Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.

About the Author:
Barry Waxler writes about the alternatives to a reverse mortgage at UFCAmerica.com.



Article Originally Published On: http://www.articlesnatch.com


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