How Does a Reverse Mortgage Work?
Reverse mortgages, also known as Home Equity Conversion Mortgages (HECM), get a bad reputation for being the next subprime disaster waiting to happen. I beg to differ. The reverse mortgage is an available tool for homeowners, 62 years of age or older, which occupy the property as their primary residence.
What makes the reverse mortgage different from other mortgages? The borrower does not have to make monthly payments on the mortgage as the interest and service fees build up over time. Also, there is no income or credit requirement allowing those who own a home with equity, but have bad credit or a poor income, to be eligible for a reverse mortgage.
The reverse mortgage can be used in a variety of ways:
- It can be used to pay off an existing mortgage and therefore eliminate monthly mortgage payments.
- To cover health expenses or renovations in the primary residence.
- Or to provide cash on hand for surprise expenses.
Baby boomers (approx. 50 to 64 years old) make up the largest group in our country and many lost over half their savings during the recession or did not save properly. The reverse mortgage is one option to get them back on the right track for retirement without affecting those they leave behind.