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For Boomers, Reverse Mortgages Just Got Interesting

Before home & garden shows lured us with dreams of luxury living and social media gave us all closet envy, baby boomers were singing a different tune. Living within your means was the refrain; home ownership, the ultimate prize. Now, those money-savvy homeowners are reaping the benefits of their investments. As boomers enter retirement, the reverse mortgage is experiencing a revival. Here’s how it works and who it’s for.

Get paid to stay in your home? Here’s the deal.

A reverse mortgage is essentially a loan given by a bank, either in monthly installments or a lump sum payment, to homeowners with a significant amount of equity built up in their homes. Typically, they eliminate a homeowner’s mortgage payments and even provide extra cash as well. The bank takes over your mortgage payments or pays you cash, using your equity as the collateral. But unlike a home equity loan, as long as one of the borrowers lives in the home, nothing needs to be repaid. Many reverse mortgage customers use the tool as a source of income during their golden years, then repay the loan after their homes are ultimately sold. But the model isn’t for everyone.

A reverse mortgage is not for...

  • Homeowners younger than 62
  • Borrowers not currently living in their home
  • Individuals with no need for additional income

A time-tested financial tool

If none of the restrictions above apply to you, you could be in a good position to reap the benefits of a reverse mortgage. During retirement, unexpected expenses can create headaches for even the most prepared among us. Meanwhile, many homeowners live in a highly valuable asset that can’t be used to pay for medical bills or unexpected needs that arise. A reverse mortgage acts as a bridge between yesterday’s wise investment and today’s current expenses.

FAQs

What are the disadvantages of a reverse mortgage?
Like any loan, a reverse mortgage accumulates interest. However, no repayment is necessary as long as at least one borrower lives in the home. This interest will eventually need to be paid back when the borrowers leave the home, whether through a sale or with other assets.

Could I end up owing more than my home is worth?
No. Regardless of how long the loan is outstanding or how much interest is accrued, the amount owed will never surpass the home’s value. As a result, there’s no risk of a reverse mortgage resulting in debt for heirs.

Do I have to eventually sell my home?
Not at all. The loan can be repaid with other funds, and the home kept.

My offer was lower than expected. Why?
A reverse mortgage is offered with care. The amount of the loan is a result of a number of factors, including appraisal value, any outstanding mortgage, borrower’s age, and current interest rates.

P.S. This is important...

Reverse mortgages, like most financial products, come in all shapes and sizes. Terms and interest rates vary widely. As such, comparison shopping is an absolute must. The easiest way to get competitive offers is to use an offer aggregator like LendingTree. A single application is all that’s required to get banks competing for your business. Even if you’re just exploring your financial options, having multiple offers from lenders around the country puts the ball in your court. The bottom line? For well-prepared baby boomers, financial peace is achievable, and a reverse mortgage could be a excellent next step.

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