Understanding Reverse Mortgages

You say you don’t understand reverse mortgages? Well, pull your chair a little closer and settle in, because I am about to lay it out for you in regular, homeowner speak but first, let me start by congratulating you on your success. Although you may be requiring a little financial assistance right now, it does not take away the fact that you accomplished something that the average citizen will never be able to accomplish. That said, let’s look into ways of helping you maintain your life’s most prized possession, shall we?

Understanding Reverse Mortgages 1

You’re here because you may be fearful of losing your home. The global pandemic has caused a financial crisis that will change the course of the future. Your only concern is to save your home, so you consider reverse mortgages and you’re freaking out about it because you don’t understand it. The gist of it is: your home, minus what you owe on it, has its value. That value, has its worth and there are companies who are willing to loan you money against it. 

Now, in order to determine that amount you must first calculate the balance of any home loans you may have previously taken out, taxes, insurance, etc. These are called deductions. Then, you minus the total amount of deductions, from the appraised amount of your home, which determines your home’s equity. The equity amount is how much you are legally able to borrow from a reverse mortgage lending company.

I know this all sounds well and good, but I would be remiss if I didn’t advise you of the risks involved with reverse mortgages. The birth of reverse mortgage came with only good intentions. In 1961, a low-income couple from Maine, in your very same situation, visited a local loan company seeking financial help with saving their home. The company drew up an agreement especially for them, allowing them to save their home. Since then, the terms of those agreements have evolved and unfortunately, the people drawing up those agreements aren’t always the fairest. There is a chance that you could lose your home if the terms are broken. 

What are the terms? Well, they differ according to the lender, however there are the standard stipulations that have not changed since 1961, which are the following: the borrower must remain in the residence as the homeowner, must not file for bankruptcy and the home’s expenses (i.e. property taxes, insurance, etc.) must kept up to date.

That was merely a quick guide to understanding reverse mortgages, to help you determine if this may work for you. There is no cookie-cutter solution in reverse mortgages, everything is dependant upon your personal situation. Still, we are in uncharted economic times, and if there was ever a time to throw caution to the wind, I would say that now is the time. I hope this helps!


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