According the National Council on Aging, reverse mortgages can be used by over 13 million Americans to pay for long-term care expenses at home, allowing many to remain independent and in their homes longer.
The NCOA describes reverse mortgages as:
"Reverse mortgages are loans that allow homeowners aged 62 and over to convert home equity into cash while living at home for as long as they want. Borrowers continue to own their homes, and do not need to make any monthly payments. Instead, they can choose to receive the funds as a lump sum, line of credit, or as monthly payments (for up to life). The loan comes due only when the last borrower moves out, dies or sells the home."
However, many seniors can be taken advantage of by unscrupulous lenders and confusing contracts.
For this reason, I recommend reading a recent Fortune Magazine article titled Unlocking your home equity.
The bottom line? Do your homework. The Fortune article states:
- Reverse mortgages are available only to people age 62 and older
- The amount you can borrow depends on your age, the value of your home, and interest rates.
- You can choose to receive your money in a lump sum, monthly installments, or a line of credit.
- There are no monthly payments to make - and therefore you don't have to meet an income requirement to qualify.
- The debt is settled with the proceeds from the sale of your home. If your house sells for less than what you owe the federal government covers any shortfall.
- Reverse mortgages are a very expensive way to borrow. Reverse mortgages are "rising debt" loans: The interest you owe is tacked onto the balance, eventually becoming a substantial portion of your overall debt, and you end up owing interest on the interest, compounding the cost.
- Borrowers are also hit with an avalanche of upfront charges.
- In the past some reverse-mortgage brokers pressured borrowers to buy investments like deferred annuities with the proceeds of their loans. A new law prohibits lenders from requiring borrowers to buy investments or insurance products as a condition of getting the loan.
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