Reverse Mortgages… a new way to purchase a home

Reverse mortgages… no doubt, you’ve heard about them.  Maybe someone you know has tried out a reverse mortgage. More likely, you’ve seen Tom Selleck or Henry Winkler on TV pitching the virtues of a reverse mortgage. I can tell you that you’ll never fully understand how a reverse mortgage works by watching a 60 second television commercial.  Recently, I’ve taken several classes in order to better understand the benefits (and potential issues) of a reverse mortgage. And, I can tell you reverse mortgages can be complicated, but with several surprising possibilities.

Reverse mortgages first started in the late 1980s. After their initial introduction into the mortgage industry, they became plagued by some myths and some misinformation, as well as some honest pitfalls.  But over time, the industry made adjustments that allowed reverse mortgages to become a powerful tool for both maintaining senior home ownership and for financial planning.

The obvious advantage for reverse mortgages is that they allow older residents to use the equity that they’ve built up their house. They can use a reverse mortgage to access their equity and have no payments. That way they can live in the house without having a mortgage payment. It helps put the house in the position to take care of its residents at a time in their lives when they might want a little extra financial flexibility.  It’s always nice not to have a house payment.

One of the really surprising uses of a reverse mortgage is for purchasing a home.  Depending on your available equity or available cash, you can use a reverse mortgage to purchase a purchase a new home or second home, if you can put down about 60% of the value of the property.  If you can, then you can potentially own your new home, without a monthly mortgage payment. While you may have enough cash to purchase the home outright, the use of a reverse mortgage allows you to hang onto 40% of the cash needed to buy the house.  This added liquidity means that you will have an extra financial cushion for things like medical expenses, home repairs, auto purchases, or just to take a vacation. Using this plan, you wouldn’t have a mortgage payment.

Reverse mortgages may not be for everyone, but the benefits of additional purchasing power and improved lifestyles certainly make a reverse mortgage worth considering for folks over 62, whether you already own your home or are considering purchasing a new home, or even thinking about buying a second home.

While I’m a long way from being an expert on reverse mortgages, I’d be more than happy to answer questions for you or to put you in touch with someone in my network of experts.

Please don’t hesitate to give me call or shoot me a note. I’m always around to help you with any of your real estate questions.

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