Stacy and I have been seeing a commercial on TV quite a bit lately. It is of “the Fonz” (Henry Winkler) promoting reverse mortgages (see the Youtube video here) and talking about how great they are for seniors who want to enjoy retirement. Well, a friend of ours just so happened to ask what a reverse mortgage is and how it works, so I thought I’d give you a run-down of what a reverse mortgage is, how a reverse mortgage works, and whether or not it is a good idea for you. I know, I know, that means there will probably be some controversy, but I look forward to the healthy (repeat, HEALTHY) debate. So let’s dive in.
First, let’s define what a reverse mortgage is. A reverse mortgage is a loan supported by the Department of Housing and Urban Development (HUD) where a homeowner age 62 and above can borrow against the equity in his/her home. A reverse mortgage is only valid on a primary residence. This loan allows seniors to get a lump-sum amount, monthly payments or as a revolving line of credit. As common sense might tell you based on its name, a reverse mortgage is where the bank pays you money for your house. To keep things simple, we won’t get into the details of how much can be borrowed other than to say you can’t borrow more than the house is worth. [Read more…]