Things to Think About When Considering a Reverse Mortgage

If you are 62 years old, or about to be, I have some information to share with you about retirement home loans, also known as a reverse mortgage. But what makes them so different from "normal" mortgages, and why should you take one out? As with any financial decision, you need to know what's in it for you. Here's the long and the short of it.

Will it create another financial commitment that I can't get out of?

If money is already a factor for concern, you need to get your facts straight. Let's look at the first consideration in a traditional mortgage – repayments. It's a monster that demands to be fed, and these become an immediate, regular and predictable part of your life once you've committed to a regular mortgage. Monthly payments also have a way of eating into your cashflow, which doesn't really shout "comfortable retirement"!

Enter the reverse mortgage. It's a long term loan, so you are under no pressure to start with immediate payments. As long as you live in the house, there is generally no pressure to settle the full balance. But be cautious – if you contravene the terms of the agreement, it can be revoked. In general, it does free up money to spend during your retirement, without any instant consequences to your finances.

Why is this mortgage "reversed"?

With a regular loan, your mortgage payments would be a monthly commitment. With a reverse mortgage, your reverse mortgage lending institution allows you monthly access to your money, which can become, to a degree, another form of income during your retirement.

And if I have a Home Loan already – can I qualify?

In a nutshell – yes, the possibility does exist, BUT the two cannot be held simultaneously. You would have to immediately settle the regular mortgage using a part of the reverse mortgage. Then you would be free to access the funds in your reverse mortgage.

Am I still liable for Property Expenses with a Reverse Mortgage?

Yes – you are still the homeowner, and your commitments don't disappear! Taxes, upkeep and any other home-related expenses remain your responsibility. Under a Reverse Mortgage, the house remains yours if the loan is valid. But take care - if you violate the terms, which could include filing for bankruptcy, failure to pay tax, or anything that affects your ability to honor your commitment to the lending institution, you run the risk of your loan being revoked. Your loan will also become void if you choose to move to another house.

What is the loan period?

In a regular mortgage, the loan is valid for a set period over a certain amount of years, which is paid back in calculated portions, normally monthly. With a reverse mortgage, it remains valid if you stay in the same house and do not violate your loan agreement. Therefore, the period could be 10 years or more, based on your individual situation and its related factors.