Reverse Mortgages 101: An Introduction

If you are 62 or older and strapped for cash, a reverse mortgage may be a solution for you.

As Baby Boomers approach retirement age, many discover they did not save enough money for their retirement. Since many seniors want to age in place, they often want to avoid selling their current home unless it is absolutely necessary. One option for these seniors to consider is obtaining a reverse mortgage, which gives them access to their equity in their homes without the worry of monthly payments, since the loan is repaid when the home is sold or upon the death of the owner.

Options for Reverse Mortgages

If you are 62 or older and the value of your home is less than $625,000, then you might want to consider a Federal Housing Administration (FHA) reverse mortgage. While lenders tend to be more lenient when evaluating applications for FHA loans since they have the guarantee of the Federal government, they have some limitations. For example, when a senior opts for an FHA reverse mortgage, he or she can only receive 60 percent of the equity value during the first year of the loan. The rationale for this limitation is to avoid tapping out the loan early, which many lead to significant financial hardship.

According to Bloomberg, some lenders are starting to offer seniors the option of jumbo reverse mortgages. If the home is valued at more than $625,000 and they have sufficient equity, these loans provide older Americans access to more money than they would otherwise.

To learn more about reverse mortgages, contact a reverse mortgage expert.