Getting Equity Out Of Your Home for Retirement by Barry Waxller

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?

If you own a home, you have been in a forward mortgage and you know how it works. You borrow money for a home and then pay it back over a set schedule, often for a full thirty years.

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 reverse mortgage is legally restricted to a certain class of homeowners. In fact, you have to be at least 62 years old before you can even think about applying for one. Assuming you meet this requirement, everything flips.

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.

The nature of the payments, of course, is unique. You can have the lender make monthly payments to you much like you did to your original mortage lender. Alternatively, you can ask for a lump sum payment.

The biggest selling point of the reverse mortgage is the lender payback. Simply put, you don't pay the lender back. They recover their money when you pass away or the home is sold. Not bad, eh?

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.

The first problem with the reverse mortgage is your heirs. If you hope to leave them with something, you need to realize the reverse mortgage lender is going to take a large chunk of the equity in your home when you sell it or pass on.

The cost of the reverse mortgage is another big issue. Simply put, the fees are outrageous in most cases. They often run up in the tens of thousands of dollars. The interest rate on the accruing debt is also going to be higher than normal loan rates.

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.

About the Author
Barry Waxler alerts consumers to the disadvantages of a reverse mortgage at UFCAmerica.com.