What Are Reverse Mortgages?

Filed in reverse mortgages on Jul.24, 2009

It’s always wise to carefully evaluate all of your options before making a financial decision. That’s especially true when it comes to bankruptcy because of the long-term consequences, and there are many options that people consider including reverse mortgages. What exactly is a reverse mortgage and is it a good idea for paying off your debt?

Who qualifies for a reverse mortgage? If you are at least 62 years old and have home equity, then you qualify for a reverse mortgage. These are loans that are specifically meant for seniors with home equity.

Let’s say you own a $200,000 home, and you own it free and clear (which means you don’t owe the bank anything anymore). You can borrow a certain percentage of the equity in your home, and that amount will be paid to you at a specified time such as on a monthly basis. You won’t have to make any mortgage payments, and nothing has to be repaid until the senior citizens move or die. (You don’t necessarily have to own the home free and clear, as some lenders will simply use whatever equity you may have.)

This might sound like a fantastic bargain, but remember that the loans have to be repaid eventually. If you don’t repay them, then the lender can take over the house and leave your heirs with nothing. If you don’t have any children or grandchildren that will inherit your house, this may not be such a bad idea. You could use the money as income and not worry about what will happen to your house when you pass on.

Did you know that a reverse mortgage may change your eligibility for Social Security benefits? These are the type of things that you need to find out about before making a decision. Never let anyone push you into making a decision and don’t get too excited about the money that you would receive. Remember that the loan has to be repaid at some point whether it is during your lifetime or during the life of your heirs.

What about bankruptcy as an option? We would never say that you should take bankruptcy lightly or jump into it without weighing your options carefully. However, if you have a significant amount of debt, bankruptcy may be better than getting a reverse mortgage. This could wipe out your debts without having to put your home on the line. This is especially significant if your debt comprises unsecured credit card debt because your home is usually safe from that kind of debt.

Tags: bankruptcy, debt, debt relief, reverse mortgage, reverse mortgages

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