Reverse Mortgage Mistakes Too Common: Government
NEW YORK (
In other words, these borrowers have ignored, or are unaware of, the best advice: to take a reverse mortgage as late in life as possible, and to borrow a little rather than a lot.
To back up for a second, a reverse mortgage is a federally backed loan against the equity in the home, which is the difference between the home's value and any debt remaining on a mortgage or home equity loan. Unlike a regular mortgage or home equity loan, a reverse mortgage requires no monthly payments. Instead, the debt and interest charges are paid when the home is sold, the owner moves or dies. This total can never exceed the proceeds from selling the home, so the borrower's other assets are not as risk. Because there are no payments, the homeowner does not need an income to qualify for one of these loans.These features obviously pose a risk for lenders, who compensate by limiting these loans to less than the home's value at the time the deal is closed. The older you are, the more you can borrow on a home of a given worth, since there is less risk you'll live long enough for the debt to grow larger than the property's value. If the home eventually sells for more than the debt, the difference goes to the owner or owner's heirs. Owners who take loans when they are younger can borrow less and are less likely to have any equity left 10, 20 or 30 years later, when all their other financial assets are more likely to be gone. Borrowing at 62 increases the chances you will run short of money at 85.
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