Frequently Asked Questions for Reverse Mortgages

The reverse mortgage is getting a lot of play these days in the media, but what is it exactly? Let's take a closer look at it and some of the issues that arise.

The reverse mortgage is a form of negative amortization, but with a favorable side effect. While you make payments to a lender with a traditional home loan, the lender makes payments to you with a reverse loan.

As payments are made to you, more and more of the equity in your home is converted into debt. That debt grows at an interest rate that is typically one to two points higher than a normal mortgage or refinance.

A thought that may have popped into your mind is what ultimately happens when the equity in the home is used up? If there is no equity, do you still own the home? Are you expected to pay off the loan? Do you get evicted?

This is exactly what happened when these loans were first offered. This unsavory result did not stand. The federal government got involved. In most current situations, you are allowed to remain in the home, but payments to you stop.

Considering you are giving away a big chunk of your nest egg, you should get some sizeable payments, right? Well, maybe. There are a lot of factors involved. These include the dollar value of your equity, your age and so on.

If this sounds too vague to you, don't worry. One of the biggest factors is the program you choose. There are different ones offering different payment amounts. You can even take lump sum payments in some cases.

At some point in time, you might realize a reverse mortgage is not for you. Can you get out of it? Generally, you can so long as you pay off the mortgage debt. Make sure to read the loan documents for language on this issue.

Many wonder if they can tap additional appreciation as time passes. If you home grows in value, the answer is you can. Frankly, this is an area that has not seen a lot of action given the relative newness of reverse mortgages.

What happens when I die? The reverse mortgage is handled no different than any of your other assets. It becomes due. This means your heirs must either pay it off or sell the property. If they sell the property, the reverse mortgage balance is paid off.

The reverse mortgage is often touted as a great way to pull income from real estate. In truth, it is a very expensive method for doing this and there are better options. Make sure to speak with a financial advisor before going this direction.

What is a reverse mortgage? Find out at UFCAmerica.com.