Reverse Mortgage for Seniors

The life expectancy has been steadily rising in the last few decades. However, so have the costs of medical treatment. With decidedly elderly bodies, new income-earning opportunities for seniors are limited. As restricted cash flow dulls their lifestyle, more and more seniors are finding that reverse mortgage loans are saving them from having to live insecurely. Reverse mortgage loans are not specifically a niche for senior citizens. However, the majority of those who avail of this debt facility are America’s gray-haired seniors. Feeling the hardships of having to stretch their pension money amidst the rising costs of living makes this loan a strong option.

So you will be wondering what exactly is reverse mortgage? In simple terms, a reverse mortgage is the “opposite” of a conventional home loan. In reverse mortgage the debt is not repaid until the borrower dies or sells the house. The debt gets larger with time before it is paid off. A reverse mortgage enables a senior citizen to receive a regular stream of income from a lender, it can be a bank or a financial institution, against the mortgage of his home. The homeowner (i.e. the individual pledging the property), continues to stay in the property till the end of his life and receives a payment periodically on it. When the home is pledged, its monetary value is arrived at by the bank, based on the demand for the property, current property prices, and the condition of the house. The bank then disburses a loan amount to the borrower in the form of periodic payments, after considering a margin for interest costs and price fluctuations. The loan given to the borrower is based on life expectancy. In general, the older you are at the time of the loan, the more money you will get. A 62-year-old, for example could borrow $110,000 through a reverse mortgage if he has $250,000 in equity. On the other hand, a 76-year-old septuagenarian could borrow $149,000 for the same equity amount. You can seek a competent financial adviser who knows the ins and outs of reverse mortgages or use a reverse mortgage loan calculator to see what you might be eligible to receive.

To sum it, the amount of the reverse mortgage is majorly determined by four factors:

  • (a) the fair market of the house,
  • (b) the age of the borrower (homeowner),
  • (c) the qualified interest rate of the mortgage,
  • (d) the maximum loan amount of the county where the borrower is based.

There are few downsides of reverse mortgage. The documentation procedures are lengthy. Banks require various documents of the property. For a senior citizen this procedure could be tedious, complicated and difficult to understand. Secondly, the monthly payouts are fixed. There is no provision to increase this amount in case of an emergency or contingency.

As a financial tool, Reverse Mortgage is ideal to augment a senior citizen’s income in his years ahead. Despite all its drawbacks, it could make good the shortfall in one’s pension or income to live a quality life ahead.

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