Reverse Mortgage – Is The Money Worth The Risk?

Reverse mortgage may sound like a good idea, but if you are not well informed, could lead you down the path to bankruptcy.  A reverse mortgage is a loan available to senior citizens.  This releases the home equity as multiple payments or a lump sum.  Th obligation to repay the loan is put aside until the owner leaves, the home is sold, or the owner dies.  In a reverse mortgage the interest is applied to the lien on the property.  If the owner receives payments or a bulk amount, the debt increases each month.

So what does it take to get one?  The borrower must be at least 62 years of age.  There is not minimum income standards nor are there any credit requirements.  Applicant must seek financial counseling from a source which is approved by the Department of Housing and Urban Development.  This is just so the borrower knows what they are getting into.  You can get a reverse mortgage if you already have a mortgage on your house, but the stipulations applied to that could provide you with little benefit

There are five things that determine what amount of money will be available.  The house appraisal, the reverse mortgage interest rate, the age of the senior, what type of payment is given, and the value of the property.  This is called the Total Annual Lending Cost, or TALC.

Now that you are armed with that information, should you get one?  That is entirely up to you.  In todays economy it is not a good idea to choose a financial course of action that could have a negative effect on you.  This isn’t to say a reverse mortgage is a negative thing.  A reverse mortgage can help if you are having a hard time making ends meet.  The loan provided could be that edge you need to continue living in your own house comfortably.