Revere mortgages allow a homeowner to tap into a home’s equity. Repayment is delayed until the homeowner ceases to use the home as the principal residence.
To illustrate, with a traditional mortgage, the homeowner borrows money from a lender and then repays the debt by making monthly payments to the lender. As the debt decreases, the homeowner builds equity in the home. With a reverse mortgage, the homeowner essentially sells the equity in the home to a lender. The lender pays the homeowner a lump sum or in monthly payments. The homeowner’s equity in the house decreases as the payments made by the lender increase.
Reverse mortgages can be helpful by providing funding that allows a senior to remain in his or her home longer. The monies can be used for home repairs, alterations (wheelchair ramps, handicap accessible bathrooms, etc) and living expenses. Repayment does not occur until the homeowner no longer lives at the home. Obviously, if repayment does not occur, the lender may foreclose as in a traditional mortgage.
For seniors ages 62 and older, the Department of Housing and Urban Development (HUD) offers Home Equity Conversion Mortgages (HECMs). Specifically, HUD provides insurance for reverse mortgages financed by private lenders. Private companies also offer reverse mortgages; however, without the benefit of federal insurance these mortgages are typically much more expensive and risky.
Reverse mortgages do have benefits for seniors in the proper situation. However, seniors should seek professional advice to determine if a reverse mortgage is the best option for the senior’s situation and to navigate finding the right lender offering a reverse mortgage.
Editor’s Note: Melanie B. Bradford is an attorney located in Scottsboro, Alabama at 803 Garland Ferry Road at the intersection of Veterans Drive and Garland Ferry near The Daily Sentinel. Her phone number is 256-259-3301. The Alabama State Bar requires any communication that may be interpreted as an ad to state: “No representation is made about the quality of legal services to be performed is greater than the quality of legal services performed by other lawyers.”