Remembering Your Health and Finance

What is the one thing you read over and over? Buy a home! The advice makes sense in this case as a home is a good long term investment. The question, however, is how do you get the money out when you need it?

Most people are familiar with a forward mortgage. You borrow money from a lender to pay for a home. You then pay back the loan on a schedule over a number of years. The reverse mortgage is similar to this, but the money is going the other way.

The reverse mortgage is touted as a revolutionary new financial product. This is not entirely or even remotely true. This financial product has been around since the 1960s.

The government and various groups have worked long and hard to eliminate bias in the country. It is somewhat ironic that the reverse mortgage contains a legal bias. Yes, you can only apply for it if you are older than 61 years of age.

The reverse mortgage works the opposite of a traditional mortage, but it can be hard to get your head around the concept. Essentially, the lender buys the equity in the home from you by making payments to you.

Show me the money. That was the refrain of a famous movie with Tom Cruise. With reverse mortgages, you can get it in one of two ways. The first is as a lump sum payment. The second is in the form of monthly payments.

The good news is you need not pay back the money the lender is paying you. Instead, the lender will recover the money when the home is eventually sold. The bad news is you are limited to selling only fifty percent of the equity you have in your home.

So, are there any negatives to this equity converting financial product? Oh, yes there are. Remember, marketing efforts are all about emphasizing the positive while ignoring the negatives.

If you have heirs you wish to take care of, the reverse mortgage can be a nightmare. Remember, you are selling your equity in the home. When you pass away, this often results in little being left for your heirs.

A huge problem with the reverse mortgage is the expense. They are incredibly expensive, often costing tens of thousands of dollars to institute. The FHA has even started overseeing them to protect consumers.

Ultimately, the issue of whether the reverse mortgage is a good idea is very controversial. Opinions differ, but most feel these are not good loans when compared to the many options available and you should explore those options.