Reverse mortgages - tapping into equity for liquidity

This posting is a followup to last week's post about reverse mortgages.

For most seniors, their home is their greatest financial resource. It represents years of hard work and prudent savings. Wouldn't it be great if the value that has built up in the home could be applied to other needs or for well-deserved rewards for a lifetime of hard work?

It used to be that the only way to access that equity was to sell the home. For many, selling the home is not a desirable choice. However, in recent years we have seen the growth of a very viable alternative for those seeking access to the savings accumulated in their homes. A reverse mortgage provides the opportunity to convert the equity in the home into immediately available funds.

As the name infers, this mortgage works in a manner opposite to that of those we are used to. That is, instead of the borrower paying the lender, the lender pays the borrower. As in traditional mortgages, the home is still collateral for the loan.

To qualify for a reverse mortgage, you merely need to be 62 years old and own your home. Credit considerations are very relaxed. The greatest restriction lies only in the percent of the property’s total equity that can be accessed.

Great flexibility exists as to how the proceeds of a reverse mortgage can be paid out. A senior may wish to be paid in one lump sum; or in monthly installments (like an annuity). The loan amount may also be treated as a line of credit which can be accessed only when desired and in varying amounts.

The key is that the reverse mortgage does not have to be repaid until the property is sold or the borrower no longer lives there. The magazine of the AARP offers an easy to follow analysis of reverse mortgages and even provides an interactive calculator to assist interested borrowers in their consideration of whether a reverse mortgage is right for them.