Popularity of Reverse Mortgages Rises; Are They Right For You?

The number of federally insured reverse mortgages jumped 77% this year, according to the National Reverse Mortgage Lenders Association.

Typically used by older homeowners over the age of 62, these resources allow you to borrow against your home equity. The loan isn’t repaid until the homeowner moves or dies.

Is a reverse mortgage right for you?

It’s important to be well-versed in the reverse mortgage world. Such a home loan may sound good, but you might not be able to borrow as much as you think. Use a mortgage calculator to see how much you can borrow, based on your age, your home’s value and prevailing interest rates.

Now factor in others costs: Homeowners may pay a fee of up to 8% of the value of their homes. Of that, 2% goes to government to insure the mortgage, 1% to 2% goes to the lender and the rest pays for closing costs.

If it’s likely you’ll need to sell the home in the near future due to financial hardship or illness, a reverse mortgage may not be worth the cost. Instead, consider downsizing to a less-expensive home to free up your equity.

Meanwhile, here’s a chart of the locations with the greatest number of reverse home loans originated in fiscal 2006.