Reverse Mortgages, Part I - What is a Reverse Mortgage?

I saw an advertisement the other night about reverse mortgages. Now, I had heard about these before but I was not well versed on what they are. When I found they were geared toward homeowners 62 years and older, my knee jerk reaction was they were stealing homes from older people. But after a little research, I found that there are some positives, but educate yourself completely before jumping into a reverse mortgage.

What is a reverse mortgage? 

Officially named Home Equity Conversion Mortgage, this program  was designed for seniors 62 and older who wish to stay in their home but need money for any reason. The maximum loan allowed for 2009 is $650,000 (this amount will only last until the end of 2009.)  All fees and interest are paid when the owners sell the home or pass away. I will cover those issues of estate planning in Part 3.

How does it work? When a senior needs or wants some extra cash, they can apply for a HECM. If approved they will be given a credit line in the amount requested. All costs, fees, and interest are lined out in the loan application.

What can I use the money for?  Anything.  Are you facing foreclosure?  Have a spouse in an expensive nursing facility?  Retired and want to travel the world?  They allow you to use it for anything.  Essentially, it’s a loan secured by your home.  

Now that you know the basics, put your thinking caps on for the Numbers, which is coming in Reverse Mortgages, Part 2.

Related posts:

1. Reverse Mortgages, Part II: The Numbers
2. Reverse Mortages, Part III - Tax Issues and
3. Reverse Mortgages, Part IV - Estate Planning